STOCKING UP? – New Bill Would Expand Stock Option Access, Benefits

July 31, 2000 ( - A new bill introduced in the House of Representatives would allow the use of pre-tax employee contributions to buy company stock options, while providing a deduction for the employer when the option was exercised.

The bill (HR 4972) was just introduced by House Ways and Means Committee member Amo Houghton (R-NY) in an attempt to encourage a broader participation in employee stock option plans.

The proposal would allow employees to contribute up to $10,000 a year to a stock option plan, deferring tax until the stock is sold. The contribution basis would be taxed at ordinary income rates, excess gain as a capital gain, according to BNA’s Pension and Benefits Daily.

The employer would receive a deduction for the value of the stock when the option is exercised.

“The deferral aspect would provide a powerful incentive to the employee to hold the stock for a longer term,” Houghton said in an introductory statement. “Importantly, the employee pays for the stock, through payroll deductions, with pre-tax dollars – not unlike a section 401(k) plan.”

The legislation would apply to stock options granted after the date of enactment.

– Nevin Adams