Withholding on nonqualified stock options

The purpose of this memorandum is to establish guidelines for examiners on assertion of the penalty for failure to deposit employment taxes owing as a result of exercise of nonqualified stock options. These guidelines are intended to promote the efficiency and consistency of employment tax examinations and to redirect audit resources to other issues.

For purposes of taxes imposed under the Federal Insurance Contributions Act FICATreas. Wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn upon by him at any time although not actually reduced to possession.

The regulations related to income tax withholding contain a similar definition.

The provisions related to FICA impose a similar obligation on the employer. RulC.

Nonqualified Stock Options: Tax Withholding on Former Employees - The Startup Law Blog

It has been argued that the shares or the value of the shares are not available to the exerciser forex market features the options until settlement date, and therefore no actual or constructive payment of wages takes place until that time. There is generally only a three day delay between time of exercise and time of settlement resulting from such exercise.

Nonqualified Stock Options: Tax Withholding on Former Employees - The Startup Law Blog

In fact, under 17 C. There is presently no specific published guidance relative to whether the withholding on nonqualified stock options of exercise or date of settlement is the appropriate date for considering assertion of the penalty for failure to deposit employment taxes attributable to the exercise of nonqualified stock options.

Until such time as guidance is issued or this Field Directive is modified or revoked, LMSB Employment Tax Specialists should not challenge the timeliness of deposits required under Treas. If you have any questions or concerns you may contact me ator Pam Christensen, Employment Tax Program Manager, at ext Subscriptions IRS Guidewire IRS Newswire QuickAlerts e-News for Tax Professionals IRS Tax Tips More. Know Your Rights Taxpayer Bill of Rights Taxpayer Advocate Accessibility Civil Rights Freedom of Information Act No FEAR Act Privacy Policy.

Treasury Treasury Inspector General for Tax Administration USA.