What the tax deal in Congress means for year-end planning and stock compensation
AMT patch for 2010 and 2011
New tax reporting on IRS Form 3922 for ESPPs and Form 3921 for ISOs
Outside the US: tax rates rise for stock compensation in several countries
Nonqualified deferred compensation: launches


Fidelity Charitable Services: Help your clients donate special assets (see the ad below)

ShareComp 2011: The virtual conference for the share-based compensation industry (see the ad below) Stock Plan Participant Communication, Education, and Decision Support (see the ad below)


At, the articles and FAQs on year-end financial and tax planning always attract many visitors. This year, amid all the uncertainty over future tax rates, many people have been waiting to decide on their year-end planning. To keep our content as current and insightful as ever, our editorial team has been busily following tax-law developments in Congress throughout this period (culminating in the passage of the long-awaited tax-relief bill last night). In this newsletter, we discuss what we think the tax deal reached by President Obama and Congress means for year-end planning and stock compensation.

If you have not discovered it already, please visit our new Blog. Many of the topical updates at that we include in our quarterly newsletters are published in the blog as they happen, so it is a great way to stay informed about the latest developments in equity comp and financial planning that we cover. You can even register to receive new blog entries promptly by e-mail.

Many of you subscribe for full access to, including not just our written educational content but also our calculators and other tools. We thank you all for your membership (especially at the Premium or Pro level), your content licensing, and your support in general through the years. 2010 marked our ten-year anniversary!

We hope you have a wonderful holiday season and a good start to 2011.

—Bruce Brumberg (Editor-in-Chief) and the staff of

What The Tax Deal In Congress Means For Year-End Planning And Stock Compensation

Considering the new tax legislation in Congress, we have come up with seven key points related to equity compensation and year-end planning that we think are important.

1. With the extension of the current tax rates, you will not need to give your immediate attention to all of the analysis about accelerating income into 2010 (e.g. exercising stock options, selling appreciated company stock, pro rata vesting of performance shares or cash bonuses) and delaying deductions into 2011. This will make these last two weeks of 2010 much less active for financial and tax decisions than they could have been. The insights and ideas in our year-end planning articles and FAQs on remain useful to your thinking about these decisions.

If the uncertainty over rising tax rates in the long term concerns you (either the possible expiration of the tax-cut extension in 2013 or perhaps a serious effort at tax reform), then you will want to review our article series on the effect of tax rate increases on your strategies for NQSOs, restricted stock, and ISOs.

2. The most meaningful new provision is the 2% cut in the Social Security tax rate, from 6.2% to 4.2% (Medicare remains uncapped at 1.45%). This provision, effective only for 2011, reduces your Social Security tax maximum in 2011 from $6,621.60 to $4,485.60, a savings of $2,136 ($4,272 for married couples). If you are not normally over the Social Security wage-base maximum ($106,800 in 2011), then you may want to consider delaying any NQSOs exercises until 2011. This would reduce your taxes by 2% on exercise income up to the yearly cap. It does not appear that there will be income phaseouts for this 2% reduction in Social Security tax, as there are in the Making Work Pay Credit as it applies to Social Security taxes in 2010.

3. The tax advantages of one type of stock grant over another will not change (e.g. incentive stock options compared to nonqualified stock options), as the tax rates for ordinary income and capital gains have been extended (see our sections ISOs: Taxes and NQSOs: Taxes for details on the different tax rules for these grants). While a wider difference between the capital gains rates and ordinary income rates would make ISOs more attractive, this is not happening, at least not in the next few years.

4. The withholding rates for supplemental wage income will not change. This applies to the income at the exercise of NQSOs and stock appreciation rights; the vesting or share delivery of restricted stock, RSUs, and performance shares; and purchases in an employee stock purchase plan that is not tax-qualified. The rate is staying at 25%, and at 35% for amounts of supplemental income above the $1 million threshold during a tax year. If tax rates had increased, these percentages would have risen too, as they are tied to the current rates in those tax brackets.

5. The annual legislative patch to extend the AMT income exemption amounts (see details below) is crucial both for anyone who exercises and holds ISOs and for many higher-income taxpayers: it prevents the exemption amounts from dropping to low levels of 2000, which would expose many more people to the AMT. Anyone who exercised ISOs in 2010 and still holds the stock, or is thinking of exercising in 2011, will still want to look at various strategies for minimizing AMT (see a related FAQ).

6. With new rates and exemption amounts for estate tax and gift tax, many of the various estate-planning and gifting strategies concerned solely with tax avoidance for high-net-worth individuals with company stock will shift their focus and structure, unless you have a very large estate. (See the articles and FAQs in the sections Estate Planning and Gifts in the Financial Planning section of However, the uncertainty over these rates beyond 2012 could make it misguided to rely on them.

7. If you want to convert a regular IRA to a Roth IRA, which starting this year is possible without any concern over income phaseouts, you should be aware that 2010 is the only year when you can split the taxes owed from the conversion between two years (2010 and 2011). Now that the threat of higher income taxes after 2010 is no longer a deterrent, the extension of the current rates makes splitting the taxes a real benefit. For more on Roth IRA conversions and the role stock compensation can play, see our article series on the topic.

Return to table of contents

Help your clients donate special assets with Fidelity

AMT Income Exemption Patch For 2010 And 2011

The exemption amounts for alternative minimum taxable income (AMTI) are especially important for anybody who exercises incentive stock options (see the FAQ on the AMT calculation) and other high-income taxpayers in certain states. Passed in the tax bill that Congress approved on Dec. 16, the AMT income exemption amounts for the tax year 2010 are $72,450 for married joint filers and $47,450 for single filers. For 2011, the two amounts will be $74,450 and $48,450.

In the future, the AMT income exemption amounts may be automatically adjusted for inflation every year, the AMT may be completely reformed, or annual patches may continue to be adopted every year indefinitely. For taxpayers with very high incomes, the extension of the AMT income exemption amounts offers no effective AMT reduction. The AMTI exemption amount is phased out for high-income individuals by 25 cents for every dollar of AMTI. With the 2010 exemption amounts, for married joint filers this phaseout range starts at $150,000 of AMT income and then completely phases out at $439,800; for single filers, the phaseout range starts at $112,500 and is eliminated completely at $302,300.

See related FAQs on strategies to minimize the AMT and on planning when you cannot avoid the AMT.

Return to table of contents

ShareComp 2011

New Tax Forms For ESPP Purchases And ISO Exercises: What You Need To Know

Just what you always wanted: a new tax form from the IRS! Fortunately, at least the filing duty falls to your company, not to you. Companies must now file two new information returns with the IRS: Form 3921 for ISOs and Form 3922 for ESPPs. Your company must also give you similar information (either in the IRS form itself or in a substitute form). This reporting requirement is new for ESPP purchases and ISO exercises made during 2010. Look for your copy before the end of January 2011.

These forms have the potential both to create confusion and to help you collect information for your tax return reporting when you sell shares acquired from an ESPP purchase or an ISO exercise. Plus, the forms ensure that the IRS will know information about your ESPP and ISO stock that it did not have before. This makes accurate and timely tax return reporting now even more important.

To help you understand these forms and the related tax rules, we have an article and FAQ just on Form 3921 for ISOs and an article and FAQ just on Form 3922 for ESPPs. These include annotated examples of the forms that "translate" IRS jargon into understandable language. This content is available in the ESPP and ISO tax sections of both and the Knowledge Centers that we license to companies and stock plan service providers. They are also available for individual licensing (for details, please contact

Return to table of contents Assistance in Making Timely and Informed Decisions

Maximizing the value of ones equity compensation holdings requires a series of timely diversification decisions over a long period of time. Research shows that most option-holders exercise their grants either when they are about to expire or when they need money. This strategy is risky because the price of ones company stock isn't always at its best at these times.

Making exercise and sell decisions that maximize the value of ones stock option portfolio requires a decision framework based on more than just stock price. Here are 5 things employees with stock options need to know to determine the optimal time to take action:

  1. Their Forfeit Value: The full value (time value + in-the-money value) one leaves behind when terminating prior to retirement.
  2. How small changes in stock price can yield large incremental increases and/or decreases in grant value (the leverage effect).
  3. The stock price at which an individual's financial goal is attained.
  4. One's level of concentration in company stock and options.
  5. Their Insight Ratios: A metric quantifying the remaining theoretical potential of each grant. is a unique platform that serves equity compensation recipients, financial advisors and stock plan sponsoring companies by providing this personalized information and automated email alerts that facilitate timely and informed decisions. For more information visit:

Outside The US: Global Tax Rates Increasing On Stock Compensation

The United States seems essentially alone among developed nations in not increasing taxes this year or next year on various types of income, including stock compensation. Whether this means we will eventually face a fiscal crisis, significant tax increases in the future, or deep cuts in federal spending we will leave to other respected resources and articles.

To help international and cross-border employees with stock compensation, our Global Tax Guide tracks the tax rules for equity awards in 32 countries. Among the countries to raise tax rates in 2010 are the United Kingdom (new top capital gains rate of 28% and income tax rate of 50%) and Canada (which ended the previously available election to defer tax on the portion of stock option income that you cannot deduct from taxable income).

In France and Ireland, tax increases scheduled for 2011 may lead employees and executives there to exercise stock options now before the rules change:

France: Next year will bring many changes in the income, social, and capital gains tax rates. For example, the tax rate on income from the exercise of qualified stock options will rise from 40% to 41% on gains above €152,500; the social tax due at option exercise and the vesting of restricted stock ("qualified free shares") will jump from 2.5% to 8%; and the exemption for capital gains will end, coupled with a rate increase.

Ireland: From January 1, the special tax treatment for Approved Share Option Schemes will no longer apply for grants made on or after November 24, 2010. In addition, all income from both approved and unapproved share plans will be subject to Pay-Related Social Insurance (PRSI) tax.

Return to table of contents

Nonqualified Deferred Compensation: myStockOptions.Com Launches

Recently, we decided to take one step further by launching a new site:, the only online resource exclusively devoted to nonqualified deferred compensation (NQDC) plans. Many executives and highly paid key employees are eligible to participate in NQDC plans, along with receiving various types of stock grants. The goal of is to provide educational content and tools for nonqualified deferred compensation plan participants, their advisors and attorneys, plan providers and administrators, and companies with NQDC plans.

With our trademark clear writing and independent, unbiased expertise, which many of you know well at, our new website provides education about the financial planning, taxation, risk, and legal issues surrounding NQDC and encourages participants to fully understand these topics and maximize the value of their plans. Regardless of whether tax rates are likely to rise in the future, the tax-deferral advantages of NQDC and the limits with 401(k) plans will make NQDC plans increasingly popular. has engaging articles, FAQs, glossary entries, podcasts, interactive quizzes, and a calculator. The subject nicely complements the stock compensation topics of Please take a peek at it, register, and give us your comments on it.

Return to table of contents


If you found this update from useful, please share it with your friends and colleagues, but do not copy or customize the text itself for your company's use without express permission.

Missed an update? Visit the archives.

TO SUBSCRIBE: Visit and register as a new user. Be sure to check the box for our email newsletters.



Return to table of contents