The NASPP Blog

Today I discuss a recent development related to ISOs and the alternative minimum tax.  I know it seems like all I can talk about these days are tax-qualified plans, but I promise that I have other topics in mind for this blog. Next week we’ll definitely talk about something else.

The AMT Relief You Didn’t Notice

The Emergency Economic Stabilization Act of 2008, recently enacted by Congress, quietly included some relief for taxpayers that paid large amounts of AMT.  You’ll recall that this was a problem back in 2000-2001 for many employees that exercised and held ISOs (see “Sad Tax Stories” in “Across Our Desk” in the March-April 2001 issue of The Stock Plan Advisor).  Some of these employees had recognized gains of hundreds of thousands of dollars on their ISO exercises. If the employees didn’t sell the stock before the end of the calendar year, these gains were not income for regular tax purposes but were income for AMT purposes.  And with several hundred of thousands of dollars of extra income for AMT purposes, you can bet the employees ended up being subject to AMT. 

In this situation, the employees then were entitled to a credit equal to the difference between their AMT liability and their regular tax liability, which could be applied against their tax return in any future year that they weren’t subject to AMT.  This would have all worked out fine if the stock had increased in value; when employees eventually sold the stock, the extra income from the sales would have enabled employees to use their AMT credit.  But many employees saw the stock decrease dramatically, in some cases to less than what they had paid for it.  When this happens, employees have this big AMT credit saved up but not enough income to apply it to (under the AMT system, as it existed then, the credit could not be used to reduce a taxpayer’s tax liability to $0, just to the taxpayer’s AMT level for that year).  This meant employees would have to use their AMT credits in dribs and drabs, possibly over the rest of their life.

In 2006, Congress amended the AMT system to allow taxpayers to use up to 20% of any AMT credits that were more than three years old and made these credits refundable (which means that taxpayers could apply the full 20% of their credit, even if it exceeded their taxable income for the year).  Now, under the EESA, Congress has increased this limit to 50% of any remaining credit over two years.  So, for example, let’s say that an employee had exercised an ISO in 2000 that resulted in her being subject to AMT and accruing a large AMT credit. Heading into 2008, the employee has $200,000 left in unused AMT credit.  She can use $100,000 of the credit in 2008 and the remaining $100,000 in 2009. 

Of course, this is just a quick summary, suitable for posting in a blog.  As with most things related to equity compensation, it’s a lot more complicated.  The legislation also eliminated complicated phase-out rules that applied to taxpayers with high income levels, includes provisions to help taxpayers that owed significant amounts of AMT and didn’t pay it, and the refundable credit is only available until 2012.  So make sure you read the articles from Fairkmark Press and myStockOptions.com, posted in our alert “AMT Relief Included in Bailout Package,” before you go spouting off about it.    

International Stock Plan Design and Administration Survey

We launched the 2008 International Stock Plan Design and Administration Survey (co-sponsored by Deloitte Tax) today.  You have until Dec 5 to complete it–don’t make me come after you about it!

Restricted Stock Essentials–Online

If you are wondering about best practices for restricted stock and units, then I have the program for you!  We have just updated our Restricted Stock Essentials online program.  The course includes four pre-recorded presentations (so you can listen at your convenience) on everything you need to know about restricted stock and units.  We cover regulatory considerations, plan design, and day-to-day administrative practices.  All of the presentations are newly recorded, the extensive online resource materials have been updated, and all of the course quizzes are new.  If you register for the course by Dec 5, you can save $100 off the registration fee.

Survey on Underwater Options

Equity Methods is conducting a survey on what companies are doing about their underwater options.  If you have underwater options, then Equity Methods wants to hear from you, even if you aren’t planning to do anything about them. 

Reason #1 to Renew Your NASPP Membership:  Stock Plan Administrator’s Compensation Survey and Report

With all NASPP memberships expiring on December 31, now seems like a good time to remind you of the many valuable resources the NASPP offers.  So in my blogs for the next few months, I’ll be counting them up and we’ll see how many I come up with.  My first reason to renew your membership is the Stock Plan Administrator’s Compensation Survey and Report (co-sponsored by the NASPP and Salary.com). We aren’t planning to publish it until 2009, but if you renew now, you can receive an advance copy if it–just in time for year-end merit reviews and raises.

– Barbara