Washington (June 26, 2002) -- The Treasury Department and the Internal Revenue Service announced they will extend the administrative moratorium on FICA and FUTA taxes for incentive stock options and options under employee stock purchase plans.
ISOs and ESPPs are commonly referred to as "statutory stock options."
"We have decided to extend the moratorium indefinitely," stated Pam Olson, acting Assistant Secretary for Tax Policy. "Given the significant administrative changes that would be required of employers to implement the proposed withholding, it is clear that a delay in the effective date is necessary to provide employers with adequate time to make the required changes. In addition, Treasury and the IRS need additional time to consider the many comments we received on the proposed regulations and to decide on an appropriate course of action. Consequently, employers will not be required to implement the changes until at least two years after the regulations have been issued in final form."
Under Notice 2002-47, the IRS will not assess FICA or FUTA taxes, or impose federal income tax withholding, on the exercise of any statutory stock option or the disposition of any stock acquired by exercising a statutory stock option. This moratorium will remain in place until the IRS completes its review of comments on recent proposed regulations and issues future guidance, which would apply only on a prospective basis.
Individuals still must include any compensation in income on a disqualifying disposition of stock acquired by exercising a statutory stock option, and the notice does not relieve employers of their reporting obligations. Other types of stock options - "nonqualified" or "nonstatutory" options - are not affected by the notice. These options have always been, and continue to be, subject to FICA and FUTA at exercise.
-- Electronic Accountant Newswire staff
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