NY Clarifies Stock Option Allocation Rules

January 4, 2007 (PLANSPONSOR.com) - The State of New York Department of Taxation and Finance has amended New York State Personal Income Tax Regulations to clarify rules for allocation of income from stock options, stock appreciation rights, and restricted stock for non-residents and part-year residents.

The amendments establish an allocation period from the grant date to the option vesting date. The capital gain realized on such options should be multiplied by a factor equal to the number days the individual worked in the state for the grantor during the allocation period divided by the total number of days worked within or out of state during the allocation period.

The publication generally says non-residents have New York source income from these stock awards if they performed services in the state for the corporation granting such options. The income is realized at the same time it is realized for federal income tax purposes. For part-year residents, the statute was amended to say the New York source income from such stock compensation depends on the individual’s residence status at the time the compensation is recognized for federal income tax purposes.

The amendment calls for all income to be recognized in the state if the individual was a resident of New York at the time compensation was recognized for federal income tax purposes. If the individual was not a resident of the state at that time, the amount includable as New York source income should be calculated using the grant-to-vesting allocation period and the factor used for non-residents for allocating income from these sources.

The publication includes examples of various scenarios, and can be found here .