PracticePeople In PracticeTax nightmare hits dotcom workers

Tax nightmare hits dotcom workers

In an atmosphere already strained by economic downturn, layoffs and uncertainty, hi-tech employees across the US have a new battle on their hands fighting an obscure government tax that penalises them for share option profits which they have not received.

The Federal Government’s Alternative Minimum Tax applies to stock options which are purchased and then held into the next calendar year. Employees have to pay tax on the value of shares at the option price, regardless of the share price on tax return day.

With the vast majority of hi-tech stocks crashing recently, individuals who exercised their options last year when prices were high are faced with paying taxes on ‘profits’ that no longer exist.

According to reports, more than 25 Microsoft staff in the US have been bankrupted as a result.

‘There’s something fundamentally troublesome with the concept of taxing income that never existed,’ said US congresswoman Zoe Lofgren who represents Silicon Valley, home to many AMT victims, in the House of Representatives.

In response to a number of complaints from her constituents, Lofgren has introduced a bill in Washington DC for an AMT exemption on stock options, and for retroactive relief for those currently affected.

But not everyone has sympathy for the AMT victims. Many view these tax problems as the consequences of greed and gambling among foolish dotcom workers.

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