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Tax Consequences of Stock Options: ISOs, NSOs, ESPPs, and RSUs

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, April 3, 2023

Recorded event now available

or call 1-800-926-7926

This course will discuss the tax implications of incentive stock options (ISOs), non-qualified stock options, ESPPs, and restricted stock units (RSUs). Compensating employees with stock allows them to purchase company stock and to share in the success and appreciation of the company. The type of incentive determines when, how, and whether a stock is taxed, either along the way or at the sale of the stock. So, a tax practitioner must understand the differences between these types of plans. The panel will explain how and when each type is taxed, the best tax strategies for each award type.

Description

ISOs trigger no tax until sold. However, non-statutory or non-qualified stock options are taxed on exercise. RSUs aren't options at all; these are a promise to deliver stock at a future date.

The terminology that surrounds these plans is unique. Necessary chronological terms include dates of the grant, vesting, exercise, and sale. Depending on the type of award, the acquisition of stock may be taxed at any of these dates and may be subject to tax at ordinary income, capital gains, AMT rates, or a combination of the three.

One of the biggest hurdles and the key to accurately reporting these transactions is piecing together the necessary documentation. The taxpayer may have received--and hopefully retained--an explanation from the company, Forms 3921 or 3922, details of a cashless sale, and (or) Form W-2. This needed documentation often spans years, from the grant date to the date of sale.

Given recent market trends, many private companies have seen valuations decline significantly, resulting in an increasing number of service providers holding “underwater” or “out of the money” stock options. As a result, companies may be considering repricing their stock options to help retain and appropriately incentivize employees and other service providers by reducing the exercise price of stock options.

Listen as our panelists answer frequently asked questions from companies that are contemplating a stock option repricing, explain the types of stock plans available, how and when each is taxed, and tips to minimize the tax paid on these incentives.

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Outline

  1. Incentive stock options
  2. Non-qualified stock options
  3. ESPPs, qualified and not
  4. RSUs
  5. Other stock plans
  6. Repricing
  7. Other considerations in light of the current economy

Benefits

The panel will review these and other important issues:

  • Recognizing ISOs, NSOs, ESPPs, and RSUs
  • Discerning taxation timing and rate differences between the most common stock plans
  • What documentation is needed to properly report stock transactions
  • Considerations for non-U.S. employees
  • Equity compensation and remote workers
  • Issues to consider when granting stock options to PEO or EOR employees
  • How and when taxpayers can garner benefits of repricing stock options

Faculty

Lampron, Shawn
Shawn E. Lampron
Partner
Fenwick & West

Ms. Lampron focuses her practice on executive compensation and employee benefits for emerging growth businesses, public...  |  Read More

Zobayan, Marlene
Marlene Zobayan
Partner
Rutlen Associates

Ms. Zobayan has over twenty years of international tax and benefits experience, including global equity plans,...  |  Read More

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