FOR LIVE PROGRAM ONLY Withholding on Equity Awards: Mastering Complex New FASB ASC 718 Standard and IRS Requirements THURSDAY , MARCH 30, 2017, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . • Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code . You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. • To earn full credit, you must remain connected for the entire program. WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
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Withholding on Equity Awards March 30, 2017 Barbara Baksa, Executive Director National Association of Stock Plan Professionals, Concord, Calif. bbaksa@naspp.com Marlene Zobayan, Partner Rutlen Associates, Palo Alto, Calif. mzobayan@rutlen.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
WITHHOLDING ON EQUITY AWARDS: MASTERING COMPLEX NEW FASB ASC 718 STANDARD AND IRS REQUIREMENTS
Speakers Barbara Baksa, Executive Director Marlene Zobayan, Partner National Association of Stock Plan Rutlen Associates Professionals Ms. Zobayan has over twenty years of Ms. Baksa is a frequent speaker on equity international tax and benefits experience, compensation related topics, has authored including global equity plans, mobile employee numerous white papers and articles on stock taxation, global compensation and benefits. She compensation and has contributed chapters to provides a range of services to her clients, four books on equity compensation. She is the including global equity plan design, tax reviews author of the book Accounting for Equity and tax optimization, assistance with local Compensation , published by the National Center approvals and filings, communications, and for Employee Ownership and a required text for designing administrative processes. She is a the Certified Equity Professionals exam. She also regular speaker and author on global stock plan serves as editor of The NASPP Advisor and co- and rewards issues. Prior to joining Rutlen editor of The Corporate Executive . She oversees Associates, she was the practice leader on the all NASPP member programs and services. West Coast for Deloitte Tax's Global Rewards group and managed their news alerts for global equity plan changes. 6
Agenda I. IRS equity compensation withholding rules III. Non-US watchpoints A. Types of wages B. Overview of supplemental wages IV. Plan terms and grant documents C. Permissible withholding methods A. Plan term amendments D. Supplemental wage thresholds (<$1M, B. Withholding of shares and materiality >1M) thresholds E. Form W-4 C. NYSE and Nasdaq on plan amendments F. State tax considerations D. ISS on plan amendments G. Payroll practicalities E. Communication with broker/administrator and employees II. FASB ASC 718 and impact on tax withholding A. Methods of withholding on equity awards B. ASC 718 requirements for net share settlement C. Withholding changes under Notice ASU 2016-09 7
Disclaimer This presentation contains general information only and the respective speakers and their represented firm are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and firm shall not be responsible for any loss sustained by any person who relies on this presentation. 8
I. IRS Equity Compensation Withholding Rules 9
Types of Wages • Regular wages – Amounts that are paid at a regular hourly, daily, or similar periodic rate – Subject to ordinary income tax – Subject to withholding at a rate determined based on the employee’s Form W -4 – Withholding is estimate of employee’s tax liability • Employee files a tax return to true-up withholding to actual tax liability – Reported in boxes 1, 3 and 5 of Form W-2 • Boxes 16 for state and 18 for local if applicable 10
Types of Wages • Supplemental payments – Compensation that is subject to withholding but isn’t considered regular wages • All forms of stock compensation that are subject to withholding are considered supplemental payments – Subject to ordinary income tax – Subject to withholding – Withholding methods vary – Reported in boxes 1, 3 and 5 of Form W-2 • Boxes 16 for state and 18 for local if applicable 11
Types of Wages • Supplemental payments – Employee has received $1 million or less in supplemental payments for the year • W-4 rate (aggregate method), or • Flat rate (currently 25%) – Employee has received more than $1 million in supplemental payments • Withhold at maximum individual rate (currently 39.6%) 12
Supplemental Payments • For the flat rate to be permissible – Income tax must have been withheld on regular wages paid to the employee in the current calendar year or the prior calendar year • Flat rate is not available for employees who claim they are exempt from withholding on their Form W-4 – $1mm or less in supplemental payments = no withholding – > $1mm in supplemental wages = withhold at max rate • Flat rate is not available for former employees who receive payments in the second calendar year after their termination – Must withhold at the former employee’s W -4 rate 13
Supplemental Payments • Disadvantage to using the flat rate – It isn’t the correct withholding rate for a lot of employees – Employees in higher tax brackets (e.g., executives) will owe additional tax when they file their tax return • This can trigger penalties, unless employees: – Increase withholding on their regular pay to make up for the shortfall – Make estimated tax payments 14
Supplemental Payments • Can federal income taxes be withheld at a rate other than the flat supplemental rate? – Yes, in two circumstances: • If W-4 is used to determine withholding (aggregate method), or • If the employee has received more than $1,000,000 in supplemental payments, you must withhold at the highest individual tax rate – For supplemental payments under $1,000,000, you must use either the flat rate or the W-4 rate • Publication 15 (Circular E): Employer’s Tax Guide specifically states (on page 14) that no other rate is permitted • Information Letter 2012-0063, issued in September 2012 further clarifies the IRS position – ASU 2016-09 does not change tax law, regulations, or the IRS position 15
Form W-4 Additional withholding is specified as a dollar amount. 16
Form W-4 Process for Requesting Additional Withholding on Form W-4 1. Employee submits new Form W-4 requesting additional withholding – Requires employee to figure out dollar amount of additional withholding to request (cannot be requested as a percentage) – Subject to limitations imposed by company 2. Company applies W-4 rate to payout under stock award – Income from stock award must be aggregated with employee’s other income for the same pay period – Payroll will likely have to determine the withholding 3. Employee submits new Form W-4 to reset withholding back to regular level 17
Types of Wages • FICA Wages – Unless specifically exempted, employee compensation is also considered wages for FICA purposes • Applies to both regular wages and supplemental payments 18
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