Incentive Options

There are two basic types of options: non-qualified stock options, typically issued to workers, and incentive stock options, which are usually offered to executives. Non-qualified options are taxed sooner and at higher rates than incentive options, but incentive options can trigger the dreaded alternative minimum tax.

Workers can get stuck in a stock option tax trap in one of two ways, depending on which type of options they used to buy company shares. With both kinds of options--incentive stock options and the more common nonqualified options--the tax is based on the difference between the low price the employee pays for the stock and its actual value on the day the stock is purchased.

There are two basic types of options: non-qualified stock options, typically issued to workers, and incentive stock options, which are usually offered to executives. Non-qualified options are taxed sooner and at higher rates than incentive options, but incentive options can trigger the dreaded alternative minimum tax.

Thousands of technology workers are facing huge tax bills by Monday's income tax filing deadline because of company stock they purchased last year that has since plummeted in value. Accountants and politicians from Silicon Valley to Boston say they have been inundated with horror stories about shares purchased with employee options that workers once had hoped would make them rich. Instead, the shares saddled them with big tax bills on profit they never saw.

Workers can get stuck in a stock option tax trap in one of two ways, depending on which type of options they used to buy company shares. With both kinds of options--incentive stock options and the more common nonqualified options--the tax is based on the difference between the low price the employee pays for the stock and its actual value on the day the stock is purchased.

Thousands of technology workers are facing huge tax bills by Monday's income tax filing deadline because of company stock they purchased last year that has since plummeted in value. Accountants and politicians from Silicon Valley to Boston say they have been inundated with horror stories about shares purchased with employee options that workers once had hoped would make them rich. Instead, the shares saddled them with big tax bills on profit they never saw.

Workers can get stuck in a stock option tax trap in one of two ways, depending on which type of options they used to buy company shares. With both kinds of options--incentive stock options and the more common nonqualified options--the tax is based on the difference between the low price the employee pays for the stock and its actual value on the day the stock is purchased. With nonqualified options, the paper profit is reported to the IRS and included in workers' W-2 forms at the end of the year.

The "dot-com" shakeout is claiming a new wave of victims: workers who face huge tax bills on phantom profits from employee stock options. Employees who used incentive options to buy company stock earlier this year and then held onto their shares have often seen their paper gains evaporate as high-tech issues tumbled. But thanks to the way the options are taxed, these workers often must pay tax based on their original paper profit--whether or not they saw the money.

Rose Orrico will receive favorable, long-term federal capital gains tax treatment of any profits she makes by selling her stock, because the shares were purchased more than a year ago and given to her as a gift. But tax treatment of other stock grants can vary widely. The two main types of grants are stock options--non-qualified and incentive--but each have vastly different tax consequences that influence how they should be exercised and when they should be sold.

* Tuesday, the Internal Revenue Service holds hearings on a proposal to collect payroll taxes on the value of incentive stock options awarded to executives and employees. The Senate resumes a debate on the trade bill, with amendments expected on steelworkers' health-care benefits and anti-dumping laws. The Senate Banking Committee holds hearings on a national export strategy. Witnesses include Commerce Secretary Don Evans.

There are two basic types of options: non-qualified stock options, typically issued to workers, and incentive stock options, which are usually offered to executives. Non-qualified options are taxed sooner and at higher rates than incentive options, but incentive options can trigger the dreaded alternative minimum tax.

There are two basic types of options: non-qualified stock options, typically issued to workers, and incentive stock options, which are usually offered to executives. Non-qualified options are taxed sooner and at higher rates than incentive options, but incentive options can trigger the dreaded alternative minimum tax.

Among chief executive officers of a group of 124 large companies surveyed by Towers, Perrin, Forster & Crosby, international management consultants, half earned more than and half earned less than $1,211,000. Compensation was computed from base salary, annual bonus and annualized value of long-term incentives. Base salary accounted for 44% of that figure, bonus for 18% and long-term incentives for 38%.

YARC Systems in Newbury Park announced that Karsten Jeppesen is increasing his holdings of the company's common stock. Jeppesen, YARC's vice president of research and development, has filed an intent to sell securities with the Securities and Exchange Commission. The after-tax funds from that transaction will be used to exercise employee incentive stock options. After the transaction, Jeppesen will hold just over 1 million shares of YARC common stock.