With furloughs, layoffs, and other changes in employee status, it’s easy to confuse who counts as an “employee” for purposes of income reporting and tax withholding requirements on equity plan transactions.
The answer to that in the U.S. is pretty simple – anyone who had employment related income during the calendar year gets a Form W-2 for that year, regardless of current employment status. Income from stock plan shares that were issued as part of the employee’s working relationship with the company fall into this category.
2020 has been a year of mobility. Many people are working from areas outside their primary office location and even away from their main residence. This means special attention should be given to ensuring the company has a preferred mailing address for tax correspondence, which may be different than the address on file.
The IRS reporting of stock plan income and tax withholdings for employees (including former employees) is generally handled by Payroll. This includes the mailing of the Form W-2. While Payroll may be responsible for the distribution of tax documents, they may need collaborative assistance from HR to ensure the correct addresses are on file.
When it comes to non-employees, the process for reporting stock plan related income to the IRS differs from employees – reporting is done via a Form 1099, usually prepared outside of the Payroll department.
As a result, the process used for maintaining employee addresses may not apply. The question arises, who is responsible for maintaining non-employee addresses and ensuring 1099s are mailed to the correct place? In many companies, the stock administration function serves as the reporter of information to accounting, who then mails a 1099.
The SEC has said that they are full steam ahead with enforcement actions, regardless of the pandemic. In fact, the SEC has expressed specific concern about the potential for COVID-19 related frauds or trading violations. The Commission reiterated these views this month at The SEC Speaks virtual conference (detail described in a McGuireWoods article), which reminds us that the scrutiny on financial statements, insider filings, and insider trading are operating in full force.
The Commission cited issuer financial statements as a key area of focus for their enforcement division, and this should signal to companies the ever-present need to ensure accuracy in disclosures. It seems highly unlikely that disclosure fails due to remote work breakdowns will receive a “pass” from the SEC.
With many workers at home, remote from the hub of the office, it is time to assess how material disclosures are made and determine if any process changes are needed to ensure accurate reporting.
Now is the perfect time to look ahead to year-end and use these tips to close out 2020 on a smooth note.
We’ve got a bunch of resources coming your way to help with year-end. Mark your calendars for our 2020 Tax Reporting Essentials webinar on November 18th. In addition, our next edition of the Advisor newsletter (out soon!) will address year-end in the context of COVID-19.
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