The Small Business Tax Help Blog

Posts Tagged ‘stock options’

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Question: In which state are my stock options taxable?

I have been living in Illinois for several years. I just exercised some stock options. I got these options in 1997 while living in Maryland. The grantor, my former employer, sent me a check and withheld a bunch of Maryland state taxes. (They had my address screwed up in their computer.) Even though we’ve now corrected my mailing address, they won’t fix the check to switch the withholding to Illinois. They are saying the sale of options are taxable in Maryland because that’s where I lived when the options were granted. Is this true or are they just too lazy to fix it?

Answer: While there are several type of stock options generally the amount of money that the company is putting up for the stock is taxable in the state in which the company is located. Therefore it is very likely that what they have told you is correct. If you hold the stock for any period of time and sell it at a gain, that gain would be taxable in the state of your residences. This event is likely to require that you file a tax return in both states. The good news is that you off set one states taxes with a like deduction for that tax in the other.
Options are sometimes very tricky to properly report on your tax return. You may wish to consult with a tax professional in your area. You should attempt to locate some one that is familiar with stock options.

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Question: Are taxes withheld and reported on W2 for employee stock options?

When exercising employee stock options, are taxes automatically withheld by the employer and reported on the w-2 so therefore no 1099-B needs to be filled out. It looks like I overreported withholding in 2005 according to the IRS and it appears because I doubled up the withholding for the stock exercise.

Thanks

Answer: Stock options don’t go on Form W-2. If you exercise an option and then sell the stock, a 1099 will be cut showing the proceeds. It’s up to you to keep track of the profit and file Schedule D to work out the taxes.

If you are given a negotiable option — one that can be sold on the open market — THAT would go on your W-2 as ordinary compensation. When you exercised the option it would be handled as any other option. That type of option is very rare indeed.

Special rules apply for restricted stock options. If you’ve been granted this type of option, consult with a tax pro.

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