The NASPP Blog

Tax season in the U.S. is fast approaching, and now is the time to consider how you are helping your employees understand the tax implications of their equity compensation. Like most stock plan administration processes, educating and communicating with your employees about stock plan participation and taxes should be an ongoing, year-round process and should be customized for different employee populations.

The impact of equity compensation can be confusing and intimidating for employees, but it doesn’t need to be. I’m sure that many of you have experienced the frantic barrage of calls that come in as the individual tax filing deadline approaches. If you reach out to your international HR folks, you will find that they experience a similar frenzy as they attempt to help employees who are trying to file their tax returns. Even though I can certainly sympathize with employees, this can be a burden on the time resource for not only stock plan services, but also the HR and payroll departments. Once you have the employee (or their tax preparer!) on the phone, it is difficult to offer information without stepping over the line and offering actual advice. It’s much easier to tackle this problem in advance, on paper, and with the blessing of your legal department!

If you find that you are getting a large number of employees asking the same question, this is an indication that you are missing some opportunity to educate your employees. There will always be those who do not read their notices, listen to your explanations, or take advantage of any education you make available. There will also always be some employees who have done their part, but still are not able to understand or have a complicated situation that does not appear to be covered in any of your examples. However, a large percentage of the questions that stock plan administrators and HR receive at tax time can be reduced by better employee education. You should be collecting and sharing questions and “standard” answers in preparation for tax season. If at all possible, it is very helpful to have a database of sorts that is accessible to those at your company who will be answering questions with example questions and answers so that there is consistency in the information employees are receiving. Even if the best answer is “I’m sorry, this really is something you will need to ask your tax preparer”, everyone who answers that question should know to respond in this way.

The first step in creating a solid employee education program for tax implications is to identify your different employee populations both in the U.S. and internationally. Then, you will want to identify what information you can provide to these employees that will help them file their individual tax returns. You should employ advice and help from tax advisors with local expertise, and coordinate with your local HR and payroll resources. Once you feel comfortable that you know what information each employee population may need, you will want to determine the best strategy for getting the information to them. Some populations will be comfortable with obtaining information online (and have access), others may need hard-copy handouts and face-to-face interactions. There may be situations where translation is needed.

Don’t be shy about taking every opportunity to remind employees about basic tax information. The first opportunity that you have to communicate the income and tax impact for you stock plans is during the on-boarding process. As part of the hiring or on-boarding process, employees who are eligible for equity compensation should receive or have access to information on income and tax withholding along with any other information you distribute about your stock plans. The company intranet is a great place to keep information posted as well, especially if you have a way to distinguish between participants employed in different countries. As part of the new hire process, make sure that employees know what resources are available.

Seminars or smaller meetings throughout the year–especially if you can make them mandatory–are a great way to increase visibility for your stock plans, solicit feedback from your employees, and provide information about tax time. It is especially helpful if you can make arrangements to have 3rd party financial advisors available to take questions or meet with employees individually. Examples can be very helpful for employees. If you have a few examples for situations, then employees can determine which one (if any) they fall under. For instance, if you have a 423 qualified ESPP program in the U.S., then an example of the purchase and then both a qualified and disqualified sale of shares will help employees understand the implications of either choice.

Finally, there is tax time. When you send out W-2s (or the equivalent in other countries) to employees, you have either their full attention, or their tax preparer’s. If possible, a short FAQ on income and tax withholding enclosed with the W-2 can be a great way to provide some information to employees. At the very least, you will be able to alert the employee to the fact that their taxes may be impacted by their equity compensation.

So – take a moment to review your employee education program and see if you are taking advantage of these opportunities to get employees comfortable with the basic impact of their equity compensation on their personal income taxes.

-Rachel