Tax on stock options

bjorn_toby_wilde

Back in March I sold some Non Qualified stock options in the US. Tax was withheld at 47%.

I’m assuming this was the maximum withholding and I think I should have had a payroll adjustment but I can’t find any evidence of it in my payslips.

I know there are some tax experts on here so I’d like to sense check. Am I right in thinking that, as a higher rate tax payer, I should have paid 40% tax plus 3.5% NI?

sausage_time

Assuming you are in England (and not Scotland), and assuming your tax rate, it would be 40% plus 2% if this was before April (2%+1.25%=3.25% after, not 3.5%).  My employer does not adjust, so you'll need to sort out on your tax return.

bjorn_toby_wilde

Thanks for your help. I’m checking with my employer but it’s handy to know the rates.

The US incentive team indicated that they withhold the tax and send it to our UK payroll team for them to sort out. I’m just waiting for them to confirm that

bjorn_toby_wilde

My employers have confirmed that they messed up.  They normally reimburse the difference in payroll but they missed it during an internal personnel change.  They made an adjustment this month but I think they've calculated the NI incorrectly.

They've refunded the tax correctly (5%) but calculated NI as 0% on the first £797, 12% on the next £3392 then 2% on the remainder.  In effect I think they've treated the share sale proceeds as if they were an extra month in 21/22.

I've never really looked at how NI is deducted before but I believe that, as this was treated as income in March 22 and I'd already paid NI up to and above the UEL in that month, it should all have been subject to NI at 2%.

Does that sound right?

EdSwippet

bjorn_toby_wilde said:

My employers have confirmed that they messed up.  ...

All too common, unfortunately. It seems that all employers that do this rely on a manual process to manage the UK tax and NI fallout from exercising US stock options, RSUs, and so on. And because it's both rare and a bit fiddly, the payroll folk responsible for handling the details can be rather unfamiliar with the process.

It also doesn't help that employees often don't get to see the raw numbers (forex rates, and so on), making it hard even for those employees who do understand the entire process to check the outcomes.

bjorn_toby_wilde said:

... Does that sound right?

Based on what you've written, yes. Your employer should I think be putting you back in the position you would have been in had they not made this error. That implies NI at 2% flat for presumably the entire stock option proceeds.

One final thought. Does your employer make you cover both employee's and employer's NI on stock option exercise? Mine did, and that muddies the calculation waters somewhat. You haven't mentioned it though, so maybe you escape that complication (and expense).

bjorn_toby_wilde

Thanks Ed

No, they cover the employer NIC so I am spared that.

it’s good to know that I’m on the right track.