Alert: Tax Season Ends; What's Next? (April 16, 2009)
New & Updated Content
While keeping an eye on President Barack Obama's current and proposed tax law changes, our editorial team has been busy during the past three months with content additions and updates in both tax topics and down market issues. Highlights include:
- the potential impact of stock compensation on the Making Work Pay Credit, which increases your take-home pay
- how companies are handling the widespread problem of underwater stock options, including the use of option exchanges
- financial planning for stock grants in the eventual market upturn
- 2009 income exemption amounts for calculating the alternative minimum tax, plus other AMT-related legislative developments
- strategies to implement now for likely tax increases in 2011
Click here to see a detailed list of the major additions and revisions to our content during the first quarter of 2009.
Making Work Pay Credit: Possible Snag With Stock Grant Income
Available in 2009 and 2010, the Making Work Pay Credit was included in the American Recovery & Reinvestment Act, enacted in February. For most taxpayers, it amounts to $400 per year. Unusually for a temporary tax break, the credit is being deployed to eligible people via the tax-withholding system that employers (or their payroll companies) apply to the wages of employees, so you will receive the credit in higher take-home pay. No checks will be sent by the government, as was the case with the tax rebate of 2008.
However, note that the credit has income phaseouts which your company may not consider if it is unaware of income from other sources that push you above the phaseout threshold. Unfortunately, this means that some people, including those with a big enough spike of income from stock compensation, may end up paying taxes on the credit with their tax returns unless they adjust their salary withholding. For details on this potential headache, see the related FAQ (available free).
Underwater Options Prompt Various Approaches By Companies
Amid depressed stock prices and underwater options, companies are trying to salvage the value of existing stock option grants. The most common approach involves exchanging options, whether for other options, for restricted stock, or for cash. Details, tax issues, and current examples of these exchange programs are covered in the relevant FAQs on myStockOptions.com.
The Markets Will Rise Again: Be Prepared
The current downturn will not last forever. myStockOptions.com has a number of articles about financial planning not only during the current down markets but also during the eventual market recovery, which can be a crucial time. These include articles about strategies for stock options, for employee stock purchase plans, or for company stock you already own.