Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAUnited States of Americapaid by the employee to acquire the shares) when the employeerecognises ordinary compensation income with respect to such shares.• Restricted stock: If the employee does not make a Code Section 83(b)election (see paragraph 4.1.1) the employer is generally entitled to acorporation tax deduction when the employee’s rights to the stockbecome substantially vested (e.g. when no longer subject to asubstantial risk of forfeiture and/or become transferable). If theemployee does enter into a Code Section 83(b) election the employer isgenerally entitled to a corporation tax deduction at the time the electionis made. In either case, the amount of deduction is equal to the amountof ordinary income recognised by the employee.4.2.2 Social security contributions: At the time the employee recognisescompensation income (i.e. when the stock becomes substantiallyvested, or when the employee makes an election under Code Section83(b)) on restricted stock, the compensation income will be subject toMedicare and social security taxes. Currently, the employer's share of(i) Medicare tax is at a rate of 1.45% and (ii) social security tax is at arate of 6.2%. Social security taxes are not due on compensation incomethat exceeds the taxable wage base (currently $106,800 for 2010). (Theactual full rates (including both the employee and employer portions) forMedicare and social security taxes are 2.9% and 12.4% respectively.However, these rates are divided equally between the employer and theemployee).4.3 Tax withholdingThe employer is required to withhold federal (and, generally, state and local)income and employment taxes when compensation income is recognised by theemployee.5. Taxation of share options5.1 Employee tax and social security contributions5.1.1 Grant: In general, at the time of grant of a share option, (unless theoption is traded on the open market) no taxes will be owed or payable bythe employer or employee.5.1.2 Exercise:• Non-qualified stock options: The employee would generally haveordinary compensation income upon exercise equal to the excess (ifany) of (i) the fair market value of the stock received upon exerciseover (ii) the aggregate exercise price. In addition, compensationincome is generally subject to applicable state and local incometaxes.UK/1729295/03 206 September 2010