As you deploy educational webinars, program communications, and supplemental content to help participants dive deeper, boil it down to key themes:

There are many tax strategies for managing equity compensation. There is a difference between offering tax advice and providing key information and context for your equity participants, so make it clear that while you can provide a roadmap, participants must choose their own path. That said, you can illuminate the concepts behind popular strategies without recommending any specific course of action. For example, you can explain the thinking behind tax-loss harvesting, timing the exercise of stock options, and donating appreciated stock to charity as potential strategies to reduce an income tax bill. Many of these strategies are complex, so it's also important to help participants understand the importance of working with a tax advisor.
Different types of equity are subject to different tax rules. Even the experts sometimes need a refresher on how different types of equity work and how taxes are determined. For example, stock options come in two variations, and taxes may be due only at sale or at both exercise and sale depending on whether they are Incentive Stock Options (ISOs) or Non-Qualified Stock Options (NQSOs). Meanwhile, Restricted Stock Units (RSUs)are typically subject to ordinary tax income at the time of vesting, while the taxes for Employee Stock Purchase Plans (ESPPs) are related to the length of time shares are held and the value of shares at the time of grant, exercise, and sale.
Equity income is usually treated differently than ordinary income. A realized gain from the sale of stock received from equity compensation is not taxed the same way as a paycheck. Walk through the basics of key tax principles regarding equity, such as how the length of time a person holds their shares will determine whether they may owe ordinary income tax, alternative minimum tax, and/or capital gains tax (both short- or long-term)—or how the "wash" rules prohibit selling a stock for a loss and recognizing that loss for tax purposes if a substantially identical security is purchased 30 days before or after the sale.
The paperwork matters. Help your participants understand what tax forms they'll get from their equity program and where and how to access the paperwork they'll need to file their income tax returns. For example, equity recipients will receive a Form 1099-B from their broker if they sold any shares during the year. A participant's employer will provide different IRS Forms for those who exercise an ISO during the year (Form 3921) vs. those who exercise NQSOs (Form W-2), have RSUs that vest (Form W-2), or purchase shares through an ESPP (Form 3922).

#3: Point participants to additional support

At the end of the day, equity and taxes are each complex, and doubly so together. It's completely understandable that your participants may need more personalized guidance, and you might not offer this type of support through the workplace. That is okay. But don't let that stop you from helping participants understand the importance of their decisions. Point them in the right direction for more support.

Instant Insights /

Equity compensation: Drive home the value of this valuable benefit during tax season

More From HR Executive

Related Stories

Recommended For You