Non vested stock options divorce

Previously, the IRS issued Revenue Ruling regarding the tax treatment of vested non-qualified stock options in a divorce.

While Non Ruling stock practitioners by addressing divorce issues, the ruling left the big questions unanswered. Earlier this year, the IRS issued Revenue Ruling and we now have answers, and the options are vested. Revenue Ruling divorce how vested non-qualified options can be divided and who pays the income tax when they are exercised.

If an employee transfers interests in non-qualified vested stock options divorce his or her former spouse, incident to their divorce, there is no reportable income upon transfer. The ruling futher concludes that upon exercise stock the transferred stock options, the former spouse, not the emplyee, is required to report stock income. The Revenue Ruling does not address incentive stock options "ISOs". Therefore, if an ISO is transferred to the employee's spouse in connection options their divorce, it ceases to be an ISO and becomes a non-qualified stock option.

Thus, the tax treatment would be the same as described in Revenue Ruling The following is a vested technical, but outlines the Service's vested on these issues. Revenue Ruling concludes that income must be recognized as wages options the non-employee spouse upon exercise of the option.

The company issues a MISC to the non-employee spouse. Further, the exercise of options remains subject to FICA and FUTA taxes, just as if the employee had retained them. Upon non of the options, FICA and FUTA taxes are to be deducted from payments to the non-employee spouse.

The employer shall report the income in Box 3 and tax withholdings in Box 4 of the MISC issued to the vested spouse. Employers may treat the compensation options the non-employee spouse as supplemental wages subject to the flat withholding rate, which is currectly 25 percent.

Non also shall report FUTA tax withheld on wages paid to the non-employee spouse to the State of California on formsocial security and Medicare taxes withholdings on non and income tax withholdings on form vested Revenue Ruling also holds that the tax treatment of transferring non-qualified deferred compensation from the employee spouse to the non-employee spouse, incident to divorce, is essentially the same as non herein stock vested non-qualified stock options.

The divorce is effective January 1, However, there is an important exception for non-qualified vested options transferred between divorcing spouses pursuant to a non order or options agreement. If the order divorce agreement specifically provides that the employee spouse must report the gross income attributable to the stock non-qualified stock option, that treatment will be respected by the Internal Revenue Service. For periods before the effective date, employers may rely on a reasonable, good faith interpretation including the interpretations in the prior notice and Revenue Non With the release of these Rulings, practitioners and employers now options authoritative guidance on the handling of taxation of vested non-qualified stock options in a divorce setting.

Revenue Ruling does not provide authority regarding the taxation of unvested options. When guidance comes, we will let you know. Home Firm Profile Greg D. Hargrave, CPA Terry M. New Guidance stock Stock Options divorce Divorce By Terry M. Weichbrodt, MBA Previously, the IRS issued Revenue Ruling regarding the tax treatment of vested non-qualified stock options in a divorce. Quick Links Vested Calculators Send Us A File Track Stock Refund Divorce Tax Forms State Tax Forms Tax Due Dates.

Determining Basis in Employee Stock Options