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US Bill Would Defer Stock Option Tax Until Sale Of Shares

Mike Godfrey, Tax-news.com, Washington

24 May 2000

A bill which would relax the tax regime applying to employee stock options took a step forward on Tuesday when it was approved by a voice vote in the US House of Representatives Sub-Committee on Employer-Employee Relations.

The bill is sponsored by Rep. John Boehner (R-Ohio), who has said it is 'an important step in helping the nation's workers share in the tremendous growth of today's economy in a way that benefits them, their employers and the entire economy.'

The bill would defer the tax currently payable at the time of exercise of share options until sale of the underlying shares. The existing rules make share options an unsatisfactory way of rewarding lower-paid employees, especially in high-growth companies, because they don't have the resources to pay the tax on exercise unless the employer lends them the money (which the IRS of course then taxes as a benefit!), so they are forced to sell the shares immediately, negating the whole purpose of share options, which is to create employee shareholders.

Democrats are broadly supportive of the bill, but worry that it could be used by employers to replace pension schemes, and want the bill to apply to up to 90% of a company's work-force, rather than the 50% presently proposed. Said Rep. Robert Andrews (D-New Jersey), the committee's ranking Democrat on Tuesday: 'I believe that this idea is a winner for our country.'

The bill now goes to the full Committee on Education and the Workforce. Because the proposal would make tax changes, it also must be approved by the House Ways and Means Committee before being voted on by the full House.

The bill is HR.3462. The subcommittee's web-site is at: http://thomas.loc.gov/cgi-bin/bdquery/z?d106:h.r.03462:

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