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Withholding Tax Rates and Equity Compensation in 2013

Withholding Tax Rates and Equity Compensation in 2013

Image Credit: jurvetson

As you may have heard, the Bush tax cuts are set to expire at the end of this year. There are two things about this we know for sure. The first one is that if legislation cannot agree and the tax rates are not extended, the Social Security tax rates will go back to their previous rate of 6.2% from their currently reduced 4.2%. The second thing we know is that tax rates are uncertain as to what would apply to stock compensations.

The end of the tax cuts would also raise the flat federal rates on withholding tax rates for supplemental wage incomes. For stock compensation, the current 25% and 35% are tied directly to tax brackets. These would be raised to 28% for amounts under $1 million and 39.6% for amounts over $1 million in a calendar year. Additionally, Medicare tax rates also come into play for high-income earners. Those taxpayers will have an increase to 2.45%.

In 2012, the firm Equilar looked at trends in stock compensation. Their research showed that companies in recent years (2007 through 2011) decided to stay away from stock options and focused on restricted stock. Since 2007, options only decreased from 16% to 6.4% and restricted stock only increased from 17% in 2007 to 27.9% in 2011. The numbers of companies granting both types of equity compensation increased to its highest of 66.4% in 2010 but managed to come back down to 63.7% in 2011 and has remained the same for the most part. Another important topic that Equilar looked into was performance features and their continued growth. Findings showed that over half of the companies revealed that they used performance based incentives.

Planning ahead and preparing as much as possible is key to financial success. If you need help with the possible future changes, give us a call! Stock Connections can help you understand all the ins and outs and help get you to your financial goals.

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