March 19, 2019

What you need to know about the tax consequences of employee stock options

Employee stock options are a popular tool companies use to reward existing staff and attract new employees. However, these options have major tax implications. The options – when exercised carry with them taxes. Usually, this is half the amount of shares optioned which goes to the tax authority. In the event of stock decline from when the shares were optioned – the decline is booked as a capital loss and is not deductible and will result in a mismatch on the individual’s yearly tax form.

Key Takeaways:

  • Stock option benefit is classified as employment income not capital gain.
  • If an employee decides to sell his/her stock, they become an investor and is no longer considered an employee.
  • The law was changed in 2010 which now allows the government to collect taxes when certain options are exercised and employees need to be mindful.

“A capital loss can only be used to offset other capital gains and cannot be deducted against the taxable employment benefit that arose upon acquisition of the shares through the option exercise.”

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