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TREAS/IRS RIN: 1545-BA26 Publication ID: Spring 2003 
Title: Application of the Federal Insurance Contributions Act, Federal Unemployment Tax Act, and Collection of Income Tax at Source to Statutory Stock Options 
Abstract: The regulations under sections 424, 3121, 3306, and 3401 clarify the application of the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source to statutory stock options; i.e., incentive stock options under section 422 (ISOs) and options granted under employee stock purchase plans under section 423 (ESPP options). The regulations provide that at the time of the exercise of a statutory stock option, the individual who was granted the statutory stock option receives wages for FICA and FUTA purposes. The regulations also provide that the amount of wages received equals the excess of the fair market value of the stock acquired pursuant to the exercise of the statutory stock option over the amount paid for the stock and that income tax withholding is not required when an individual exercises a statutory stock option because no income is recognized at the time of exercise by reason of section 421(a)(1). 
Agency: Department of the Treasury(TREAS)  Priority: Substantive, Nonsignificant 
RIN Status: Previously published in the Unified Agenda Agenda Stage of Rulemaking: Long-Term Actions 
Major: Undetermined  Unfunded Mandates: Undetermined 
CFR Citation: 26 CFR 31   
Legal Authority: 26 USC 3101    26 USC 3111    26 USC 3121    26 USC 3301    26 USC 3306    26 USC 3401    26 USC 3402    26 USC 7805   
Legal Deadline:  None
Timetable:
Action Date FR Cite
NPRM  11/13/2001  66 FR 57023   
Public Hearing  05/14/2002  67 FR 5076   
Next Action Undetermined      
Additional Information: REG-142686-01 Drafting attorney: Stephen B. Tackney (202) 622-6040 Reviewing attorney: Michael A. Swim (202) 622-6040 Treasury attorney: Bill Bortz (202) 622-1352 CC:TEGE
Regulatory Flexibility Analysis Required: No  Government Levels Affected: None 
Small Entities Affected: No  Federalism: No 
Included in the Regulatory Plan: No 
Agency Contact:
Stephen B. Tackney
Attorney-Advisor
Department of the Treasury
Internal Revenue Service
Room 4030, 1111 Constitution Avenue NW.,
Washington, DC 20224
Phone:202 622-6030
Fax:202 622-7865
Email: stephen.b.tackney@irscounsel.treas.gov