According to BNA, the Workplace Employee Stock Option Act of 2002 (H.R. 5242), introduced by House Ways and Means Committee member Representative Amo Houghton (R-New York), would permit pre-tax payroll deductions to purchase company stock – and would postpone imposing taxes -including the alternative minimum tax – until the stock is actually sold.
Under the plan, which would be optional to employees, no tax would be levied on the employee at option grant or exercise up to $11,000 annually, which Houghton noted is the same as the current cap on pre-tax 401(k) contributions. However, when the stock was sold, the fair market value of the stock at exercise would be taxable as ordinary income, with any appreciation treated as capital gain. There would be no withholding or employment taxes at exercise or at sale, according to BNA.
Employers would be able to deduct the fair market value of the stock at exercise, with no further tax deduction at sale. Purchases would be financed through payroll deductions in substantially equal amounts over the option term and held in trust. The price of the option could not be less than 100% of the fair market value when the option was granted.
While both public and private corporations would be
eligible for the plan, the bill allows the treasury
secretary to exclude employees covered by a collective
bargaining agreement, under certain circumstances. Under
current law, the written plan must be approved by the
majority of shareholders to be adopted, and substantially
all full-time U.S. employees of the company must be
eligible to participate.
Houghton, who does not support options expensing, notes that under his bill the options would be priced at market, available to most employees on a nondiscriminatory basis, and subject to a relatively modest individual dollar cap. As a result, he said employers would not offer the options if expensing of what would be a widely held benefit was required.
H.R. 5242 was co-sponsored by Education and Workforce Committee Chairman John Boehner (R-Ohio), who has been the major proponent of a series of pension protection provisions passed by the House in April, as well as the architect and co-sponsor of significant legislation involving changes in how investment advice is offered to participants (see at Advice Approaches Separate Senate, House ).