Treasury Announces Moratorium on Stock Option Withholding

On Tuesday, June 25, the Treasury Department announced that it would postpone indefinitely the collection of Social Security and Medicare tax on incentive stock options (ISOs) and employee stock purchase plans (ESPPs).

Last November, the Internal Revenue Service issued guidelines for withholding tax on these two popular forms of compensation. Since that time, both the Senate and the House have made attempts at overturning the legislation. Also, the IRS held a public hearing recently at which many members of industry spoke out against the action.

The new withholding rules were scheduled to go into effect on January 1, 2003. It is estimated that the withholding would bring in an additional $23 billion to the federal government over the next 10 years.

Should the withholding plans be implemented in the future, Pam Olsen, the Treasury Department's acting assistant secretary for tax policy, indicated that employers will have an additional two years in which to implement a plan for collection of taxes on these incentives.

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