Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAUnited States of Americaindividual employee's ordinary income tax rate (currently, in general,from 15% to 35%, depending on the individual's level of income). Stateand local tax rates vary by location.The employee may make an election under Code Section 83(b) toinclude in income the fair market value of the stock, less any amountpaid for the stock, within 30 days of the issue of the granted stock,regardless of applicable restrictions. 12 If such an election is made, theemployee does not recognise income when the forfeiture and/or transferrestrictions lapse. 13Any dividends paid during the period of restriction are taxed to theemployee as compensation income, and the employer will be entitled toa corresponding corporation tax deduction. If the employee makes anelection under Code Section 83(b), dividends paid after the date of theelection are taxed to the employee as dividend income, rather thancompensation income.4.1.2 Social security contributions: At the time the employee recognisescompensation income on restricted stock (i.e. when the stock becomessubstantially vested, or when the employee makes an election underCode Section 83(b)), the compensation income will be subject toMedicare taxes and social security taxes. Currently, the employee'sshare of (i) the Medicare tax is at a rate of 1.45% and (ii) the socialsecurity tax is at a rate of 6.2%. Social security taxes are not due oncompensation income that exceeds the taxable wage base (currently$106,800 for 2010). (The actual full rates (including both employee andemployer portions) for Medicare taxes and social security taxes are2.9% and 12.4% respectively. However, these rates are divided equallybetween the employer and the employee).4.2 Employer tax and social security contributions4.2.1 Corporation tax deduction:• Shares: The employer is generally entitled to a corporation taxdeduction equal to the fair market value of the shares (less any amount1213The election would be made only if the stock is subject to a substantial risk of forfeiture and is nottransferable (i.e. not otherwise taxable).Subsequent appreciation (or depreciation) after the date of the election is taxed as capital gain (or loss)when the employee sells the stock.UK/1729295/03 205 September 2010