What is equity-based compensation?
Equity-based compensation can trigger taxable income to employees when equity interests are granted, vested and/or exercised.
A couple of examples:
- If an employee exercises a nonqualified stock option and the exercise price is $5 per share and at the time of exercise the fair market value of a share is $10, the employee has taxable income of $5 per share.
- If an employee is awarded restricted stock and the right to the restricted stock vests, the fair market value of the stock may be taxable income to the employee upon vesting.
Equity-based compensation is complex. If you are unsure whether or not an employee should be taxed on any such compensation, you should consult your own tax advisor or legal counsel.
How is equity based compensation reported in Justworks?
Your company is required to report taxable equity-based compensation to Justworks. You may be able to record equity-based compensation directly to Justworks through the Fringe Benefit tool. If you have any questions about using the tool, or are dealing with a more complex matter, please reach out to your Account Manager or our Customer Success Team.
Before reaching out, please make sure you’ve confirmed the following information:
- The employee’s name
- The type of equity or income they received
- The taxable amount of that income (assuming a taxable event occurred)
- The date the taxes should process
- If a Form W-2 box code is required
When you record taxable, equity-based compensation through the fringe benefit tool, your employees will see the applicable taxes withheld from their next paycheck. If you are recording a large amount at once, consider their typical paycheck amount to avoid a payroll error or a low net payment to the employee.
Note: Justworks cannot provide legal or tax advice. If you are unsure of what equity-based compensation to report, please consult your tax advisor to confirm the taxability of equity-based compensation and correct amounts to report to us.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.