The NASPP Blog

Perusing our NASPP Q&A Discussion Forum, it’s interesting to see the various trends in terms of hot topics and where companies seem to be struggling the most in administering their stock programs. We don’t keep official statistics about the types of questions asked, but one constant trend I see is the dominance of questions around taxes, taxes, taxes. In today’s blog I identify some of the key areas of uncertainty for issuers and helpful resources to address them.

Too Much Mobility

Let’s face it: it’s more common for a company to be spread across the country or the globe than not these days. With expanded presence comes mobile employees, and multiple jurisdictions that would love to get their hands on tax revenues. For a long time the term “mobility tracking” often conjured images of remote, distant countries around the globe. While that clearly is an area of challenge and still an ever hot topic in administering equity plans, we’re definitely seeing lots of questions around domestic mobility (state-to-state within the U.S.). Some of the more common inquiries stem around employees moving from one state to another and the question of which state rules to follow in terms of withholding, and who gets those dollars. The answer is not necessarily black and white, and can largely depend upon the individual states involved (and their regulations), where the employee was located when a key event occurred, such as vesting or exercise. Some key tips to remember are:

• You only have to withhold in a particular state if you have an office there. No office, no withholding required, at least for stock compensation. So if your mobile employees are also remote employees, this may simplify the process of figuring out where to send tax dollars.

• When in doubt, call on the local payroll contacts in the state in question. If you’re working in the corporate office in California, your California payroll folks may not be fully aware of the nuances involved in withholding taxes in Pennsylvania. However, if you also have an office in Pennsylvania and local payroll contacts, it’s definitely worth a consultation with them on mobility issues.

• Leverage your third-party payroll provider for assistance. While they may not be mobility experts, they should be well versed in the withholding requirements for each state. Knowing the basics can go a long way towards figuring out next steps.

• Consult with an expert. If you have a large mobile population, or significant tax dollars involved, it may be worth consulting with a third party expert who is familiar with the ins and outs of mobility tracking. There are several firms who will even handle the calculations for you, as events occur.

• Access available information, such as the articles in our State Taxes or Global Stock Plans Portals. If you’re an NASPP member, access is free, so why not use those as a starting place?

As with any compliance issue, there is always the risk/reward analysis. Things like the number of states involved, the aggressiveness of the states in pursing tax revenue, the number of employees and tax amounts are all considerations in determining a withholding practice for mobile employees.

Terminations and Other Situations

One thing to remember is that one size does not fit all then it comes to taxation. It’s easy to assume that jurisdictions (domestic and global) may have similar practices or requirements when it comes to certain situations, such as termination, but that’s not always the case. In the U.S. we don’t distinguish between a terminated employee or an active employee for stock related withholding purposes. In fact, even terminated employees receive a W-2 documenting their stock compensation income, even if they haven’t worked for the company in the calendar year of the taxable stock event. Then, you go outside the U.S., to a country like the U.K., where tax withholding does change for terminated employees. In the U.K. the rate is reduced to a flat rate that is less than standard withholding rate for active employees. So employes with terminations in that jurisdiction need to be attentive to ensuring tax withholding rates are changed for terminated employees. I’ve seen companies “forget” this, and have to go through the painful process of processing refunds to terminated employees. Judging from the number of questions about withholding in the U.K. for terminated employees, this is still an area where companies need a sanity check. Here are a couple of tips for monitoring tax compliance when scenarios change:

• If you have a third party expert, use them. Don’t skimp when it comes to compliance. I like to say a penny spent today is a dollar saved down the road; investing in compliance should pay off – the penalties for non-compliance would likely be far greater. One thing you’ll want to double check with your expert is how changes in circumstances will affect withholding. I recommend a standard set of questions that you use to explore the requirements with your provider that includes identifying any nuances for terminations, divorce, death and other scenarios.

• Build a solid process to monitor circumstantial changes on a real time basis. It’s easier to give back money for over-withholding than it is to seek out money for under-withholding, especially if you’re dealing with former employees. Still, it’s even better to get it right from the beginning. This will undoubtedly require careful coordination with other internal business partners, like H.R. and local contacts.

• Bounce it off of someone else. Although each company should do their own due diligence when it comes to tax compliance, leveraging the experience of other practitioners can be a great resource. Don’t be afraid to turn to your peers – at an NASPP chapter meeting, via the NASPP Q&A Discussion Forums, in educational settings and through other industry events. As a whole we all become more educated the more information we share.

Taxation has been a topic of much discussion for as long as I can remember, and likely will remain that way into the distant future. There are just too many jurisdictions, volumes of requirements, and then frequent changes. This is a recipe for an active discussion forum for a long time to come. Keep those questions coming: the more we collaborate together, the more we continue to progress in building a well oiled tax compliance machine.