Stock Options as Income
Stock benefits are often given to employees as part of their compensation or as an incentive to remain with the company. One of the factors to consider when dealing with stock benefits is whether the benefits are vested or not. Vesting is when all restrictions on the exercise of stock benefits are lifted. Each employer may have different rules on how long it takes benefits to vest. It is important to review the grant documents for the benefits to understand how they work and when they will vest.
The value of stock on its vesting date can be considered income to the employee. Any appreciation after vesting is capital gain. Any subsequent exercise of stock benefits is taxable. Tax consequences may be reflected on the employee’s W-2 or the employee may need to report the receipt of income from stock options separately. The Pennsylvania Superior Court addressed stock options as income in Murphy v. McDermott. However, the court also noted that a one-time exercise of stock options should not be imputed for future years. The court may impute the value of unexercised stock options to the employee if they are available for exercise. A good family law practitioner should be able to identify all possible sources of income for each case.