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Increase in Tax Rates – How They Could Affect Stock Compensation

Increase in Tax Rates – How They Could Affect Stock Compensation

Image Credit: Alan Cleaver

The current tax rates are set to expire at the end of this year, and unless they are extended it could affect your restricted stock/Restricted Stock Units (RSU) vesting, any option exercise or even Employee Stock Purchase Plans (ESPP).  However, it is important to keep in mind that the future possible changes in tax rates are not the only factor that could affect your stock compensation. Even a little increase in your company’s stock price can affect you.  Below are five different tax rates to keep in mind.

  • The Social Security rates could increase. Workers might have to pay 6.2%, up considerably from the current 4.2%. Keep in mind that these taxes apply to the yearly wage cap that is $110,100.
  • Under the new Affordable Health Care Act, Medicare tax rates will rise for high-income payers to 2.35% from the current 1.45%. Also, all capital gains will have a new Medicare surtax of 3.8% upon stock sales.
  • The capital gains rate that applies (currently 15%) could increase to 20%.
  • The dividend tax rate may rise all the way to 43.4% from 15%. This tax rate would apply to any of the dividends you have received on company stock.

Unless you have completely decided and planned on exercising your stock options very soon, increases in tax rates are not the only reason to take action.  You should be planning around your individual situation with taxes. It all depends on what your projections look like for potential increases in the stock price, the possible increase in taxes and how much time you have available to make a decision or exercise your options.

If you need help planning you taxes or have any questions regarding the tax rate and how it will affect your stock compensations give us a call. Stock Connections can help.

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