Stock-Based Compensation

Transcription

1 Stck-Based Cmpensatin Chiu & Wang, Inc. Premier Tax Services June 22, 2007 Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

2 IRS Circular 230 Disclsure: The advice in this cmmunicatin is nt intended r written by Chiu & Wang, Inc. t be used, and cannt be used, by a client r any ther persn r entity fr the purpse f (i) aviding penalties that may be impsed n any taxpayer r (ii) prmting, marketing r recmmending t anther party any matters addressed therein. All infrmatin prvided is f a general nature and is nt intended t address the circumstances f any particular entity r individual. Althugh we endeavr t prvide timely and accurate infrmatin, there cannt be n guarantee that such infrmatin is accurate as f the detail is received r that it will cntinue t be accurate in the future. N ne shuld act upn such infrmatin withut apprpriate prfessinal advice after a thrugh examinatin f the particular situatin. Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

3 Frms f Stck-Based Cmp Statutry ptins Incentive Stck Optins Emplyee Stck Purchase Plan Nnstatutry ptins An ptin, ther than statutry ptin, which is granted in cnnectin with the perfrmance f services, t buy stck at a bargain. Outright transfer f stck t emplyees with restrictins. Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

4 Tax Cnsequences: Nnstatutry Stck Optins (NSOs) Emplyee: Recgnize rdinary incme as cmpensatin t the extent the fair market value f the stck n the date f exercise exceeds exercise price. If n ptin is granted but the stck is subject t restrictins, emplyee recgnize rdinary incme in the first year in which the stck is transferable r is nt subject t a substantial risk ffrfeiture, whichever ccurs earlier. Emplyee will recgnize capital gain r lss n the difference between the basis f the stck (i.e. exercise price + rdinary incme recgnized) and the sale price. If the ptin has a readily ascertainable fair market value at grant, subject t the restricted prperty rules, the emplyee may recgnize rdinary incme when the ptin is granted. Emplyer: Deduct cmpensatin expense fr rdinary incme recgnized by emplyee Required t withhld and pay incme and payrll taxes. Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

5 What Abut US Sub f Freign Parent? If the emplyees f US sub are granted ptins t purchase freign parent s stck: The emplyees are required t recgnize rdinary incme, and the US sub can deduct cmpensatin expense fr tax purpses. US sub is required t withhld and pay incme and payrll taxes (i.e., FICA, FUTA). US sub is als required t reprt cmpensatin expenses (i.e., W-2, 940, 941). Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

6 Nnqualified Deferred Cmpensatin Plans (NQDC) Amunt deferred under a NQDC is includible in grss incme f an emplyee t the extent nt subject t substantial risk f frfeiture and nt previusly included in grss incme, unless the plan meets specified distributin, acceleratin f benefits, and electin requirements; and is perated in accrdance with these requirements There is an interest and penalty charge fr nt cmplying with the rules Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

7 What is a NQDC? It is a plan that prvides fr the deferral f cmpensatin, ther than Qualified emplyer plan (e.g., qualified retirement plan, etc.) Any bna fide vacatin leave, sick leave, cmpensatry time, disability pay, r death benefit plan Annual bnuses paid within 1 ½ mnths after the later f a service recipient s r service prvider s tax year Statutry stck ptins Nnstatutry stck ptins are similarly excepted if the exercise price may never be less than then FMV f the underlying stck when the ptin is granted and there is n ther deferral feature Cpyright 2007 Chiu & Wang, Inc. All rights reserved.

8 Cntact Us Main Office: Crssrads Pkwy N. Suite 270 City f Industry, CA Tel: (562) Fax: (562) Silicn Valley Office: 39931Cedar Bulevard, N. 304 Newark, CA Tel: (510) Cpyright 2007 Chiu & Wang, Inc. All rights reserved.