Where participants recognize compensation income in connection with stock compensation,
the company has a reporting obligation with respect to this income and is also sometimes
required to withhold taxes on the income. This article summarizes the U.S. tax withholding
and reporting requirements for stock compensation.
While compensatory stock options are not considered property for general tax purposes, they are
generally viewed as assets subject to equitable distribution in matrimonial situations. As a result,
property settlements in a divorce often address stock options held by one of the spouses, and
they generally provide for one of the following outcomes: option retention, option transfer, or
assignment of option proceeds. Each of these alternatives has the potential to produce different
tax results. For the option transfer approach, recent IRS actions have greatly simplified the tax
consequences. This article discusses these alternatives and their attendant tax consequences.
Dividing Stock Compensation in Divorce
Everything you need to know about U.S. year-end tax reporting!
IRS instructions for completing Form 1099-MISC.
This ruling concludes that NQSOs and NQDC transferred by an employee to a former spouse incident to a divorce are subject to FICA, FUTA, and income tax withholding to the same extent as if retained by the employee. The ruling also provides reporting requirements applicable to the wage payments.
This ruling concludes that a taxpayer who transfers NQSOs and NQDC to a former spouse incident to divorce is not required to recognize income upon the transfer. Instead, the former spouse recognizes income when he/she exercises the stock options or when the deferred compensation is paid.
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