TaxCorporate TaxTechnology – What’s your option?

Technology - What's your option?

Employee share options can lead to tax misery

Employees made redundant from a dotcom may face hefty tax bills for worthless share options if they haven’t taken professional advice.

The situation arises when employees exercise options but do not sell the stock, waiting instead for the share price to rise. According to US reports, more than 25 Microsoft staff have filed for bankruptcy as a result.

Dotcom staff left with stock that is next to worthless, have to pay tax on the value of shares at the option price, regardless of the share price on tax return day.

The problem is exacerbated by workers taking advantage of a scheme which gives them tax breaks if they buy company stock for their pension scheme.

Nicki Demby, reward partner at Andersen, said: ‘Anyone taking professional advice will be told not to exercise the options until the day they want to sell, so that their tax liability is always less than their profits.

‘We strongly advises against borrowing against future options. They are an investment opportunity, not free money,’ she added.

A recent Andersen report revealed over half the share options granted at flotation prices in the last four years are now worthless.

This story first appeared on www.vnunet.com.

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