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Tax Information Resources for Participants

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March 22, 2018 | Jennifer Namazi

Tax Information Resources for Participants

It's that time of the year when tax questions begin to surge as employers have completed their income and tax reporting, and stock plan participants are muddling through their tax paperwork. In today's blog we explore resources to help address those inevitable tax questions that will come to your inbox. 

I have a vivid memory of sitting in a meeting during my early days of being a stock administrator and hearing a bunch of tax terms that made zero sense to me. Years later, I still remember that in that moment I said to myself "I will never understand this stuff." While maybe the timeline of "never" was an exaggeration, it certainly took me a learning period and lots of practicing calculations before I really understood the tax treatment of equity plans. When I worked on the issuer side of stock administration and participants would knock on my door or send emails with their tax questions, I tried to remind myself that at one point in time it was just as confusing to me. 

As stock plan administrators, we are often given direction to tread carefully with tax reporting information so that we aren't perceived to have given "advice." That is a logical concern. But often the message that makes its way to participants is "Sorry, I can't help you - talk to your tax advisor." To the participant who is struggling to get some of the terminology straight (and might be saying to his or herself "I'm not sure I'll ever understand this...") this type of communication roadblock can be very frustrating. 

There are options to avoid advice and help participants get what they need to answer tax questions! Here are some suggestions:
  • If your advisors are concerned about the perception of giving "advice" - then work with them to come up with a pre-defined Q&A for those questions you just know will be coming down the communication pipeline. Did you implement a new type of equity this year? If so, questions about the mechanics of tax treatment (how the company calculates income, withholds tax and reports to the IRS) can be anticipated and incorporated into a pre-approved communication that you can send out either in a communication, or even as a copy/paste to an email when the question arises. 
  • Consider directing employees to reputable third parties who demonstrate expertise in understanding the participant side of stock compensation and can provide additional information or context. Let's face it - the taxation of equity plans is a niche area of the overall tax code. Not all tax advisors are equal, and there are varied levels of knowledge about equity plan taxation among them. If participants need a source of information to bridge the gap to their own advisors, site like myStockOptions.com can be an excellent resource (they have information on more equity types than stock options). myStockOptions.com has a Tax Center that is updated with the current year's tax information. 
  • Be willing to discuss tax withholding calculations performed by the company and W-2 reporting to tax advisors. Instead of just referring a participant to their tax advisor and closing the door, be willing to talk to the tax advisor to explain what went on the W-2, what was withheld, and what went on any information statements provided to the participants. Such communication can be matter of fact and assist the tax advisor in understanding how the company fulfilled withholding and reporting obligations. 
The more your participants understand your equity plans, including tax treatment of their equity awards, the more likely they are to understand the value the plans hold for them. If your tax season communication policy has been closed door in the past in terms of participant questions, it's time to see if any of the above suggestions will work to help your participants increase their understanding and satisfaction in the resources available to them. 

-Jennifer

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