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Stock Compensation, Deferred Compensation and State Income Taxes

Compliance with Corporate and Employer Filing

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 11, 2019

Recorded event now available

This course will discuss the state tax implications of incentive stock options (ISOs), non-qualified stock options, restricted stock units (RSUs), and other forms of stock compensation, including withholding obligations and issues involving mobile employee incentives.

Description

Stock options and restricted shares are a popular employee incentive. However, due to an increasingly mobile workforce, a company may unwittingly trigger costly state tax obligations in the process.

Many states aggressively enforce withholding requirements on out-of-state employers for workers who perform services within the state. State guidelines may be confusing. Employers and their advisers must understand when withholding nexus arises and how to comply with various state standards.

In addition to the complexities of monitoring employee movement, state payroll laws must be understood and applied to stock-based compensation. Employers may find that filing withholding taxes exposes them to nexus inquiries for other types of state and local business taxes.

Listen as our panel of experienced corporate tax advisers breaks down and clarifies the state tax implications of employee stock incentives, including the specific risks many companies face.

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Outline

  1. Background on stock compensation and its taxation
    1. Types of stock compensation
      1. Stock options
      2. Restricted stock and restricted stock units
      3. Others
    2. Other types of deferred compensation
      1. Bonus
      2. Pension
      3. Other
    3. How stock compensation is taxed at the federal level
    4. How stock compensation is taxed at the state level
      1. Explanation of how states piggyback off feds
      2. Exceptions where states do not follow federal law
      3. Specific examples of state approaches
      4. Different state methodologies for taxation
  2. How the use of stock compensation can trigger nexus
    1. Employee withholding
      1. Explanation of how employer nexus is triggered
      2. Specific examples
      3. Telecommuting issues and challenges
    2. Implications and issues related to corporate income apportionment
      1. Payroll factor: general rules
      2. Alternative methods or discretionary adjustments
    3. Corporate income, franchise, and sales tax exposures
      1. "Doing business" vs. "transacting business"
      2. Employee withholding creates a paper trail
      3. Specific examples
    4. State legislation of note
      1. Wayfair
    5. New York State example
      1. Withholding rules
      2. Allocation rules
      3. Audit guidelines
      4. Work-at-home rule and other nuances
    6. California State example
      1. Withholding rules
      2. Allocation riles
      3. Audit guidelines
  3. Administrative challenges and practical solutions
    1. Examples of states
    2. Trends in audit
      1. Specific examples of states and audit practices
      2. Policy issues companies need to examine
        1. What companies and their tax staffs can do if employees have cash flow problems or file returns in multiple states
    3. Background on HR, stock plan, relevant payroll systems
      1. What tools are available and systems limitations
      2. How to make these more sophisticated
      3. How tax specialists can help in this effort
    4. Challenges with employee movement
      1. Creating internal mechanisms to track employee movements
        1. How tax specialists can help in this effort
      2. What companies are doing
        1. The habit of monitoring only executives and the inherent dangers
        2. Situations in which execs move from low-tax to high-tax states
        3. Need for additional controls

Benefits

The panel will review these and other essential issues:

  • Conflicting state standards on withholding obligations and withholding amounts when it comes to stock compensation
  • Setting up a tracking system to monitor the movement of highly compensated staff from state to state
  • Apportionment formulas in states where stock-based compensation creates problems for the company
  • Potential state nexus inquiries for other business taxes

Faculty

Pancamo, Joseph
Joseph S. Pancamo, CPA
Region Leader, Global Employer Services
BDO US

Mr. Pancamo has extensive knowledge in International Assignment Services. He has worked with clients to resolve...  |  Read More

Zobayan, Marlene
Marlene Zobayan
Partner
Rutlen Associates

Ms. Zobayan has over twenty years of international tax and benefits experience, including global equity plans,...  |  Read More