All
this talk of tax withholding got me thinking about the reconciliation
challenges that surround your employee tax withholding on equity
compensation. As your Payroll team prepares to send out Form W-2s or
1099s, and their equivalents internationally, the stock plan management
team should be involved in efforts to confirm the income and
withholding amounts for stock plan transactions. This can be a pretty
daunting task if you've saved it all up for the end of the year, so
hopefully you have been reconciling periodically throughout the year.
You may be able to find some relief with employees in countries where
the tax year does not end in December (such as the UK); these employees
may be set aside until after you have reconciled for the deadlines
coming up immediately in the new year. Here are some areas that you
should focus on:

Income Reported

You will want to make sure that the income amounts reported in each
payroll system match the income amounts reflected in your stock plan
administration database. If your company is tracking different sources
of income separately (restricted stock vs. options or ESPP), then the
separate sources will need to be balanced separately. However, the
total income amounts should also be reconciled as a confirmation. Pay
special attention to employees who may have transferred between payroll
groups during the year. This would include not only your globally
mobile employees, but also local transfers or administrative transfers
(for example, if you have a subsidiary locally or if employees from an
acquisition stayed under their own payroll for a period of time). You
will want to confirm that no employee income has fallen through the
cracks or been double-reported. However, in the case of income from
globally mobile employees, you may have situations in which the
double-reporting of income is correct and intended, which you will need
to also track and confirm.

Tax Withholding

Reconciling the tax withholding amounts can be trickier than
reconciling income. This is because there are more situations in which
the amount of withholding reported should not equal the amount actually
withheld at the transaction because of an administrative policy. For
example, there are U.S. states where withholding amounts are difficult
to determine in advance (like Kentucky) where your company has chosen
to true-up through payroll. This is also true internationally; your
company may be withholding at a higher rate on the transaction and then
refunding excess through the local payroll either because you have
implemented a foreign disbursement process that requires a 100% sell or
because you have difficulty obtaining individual tax rates. Hopefully,
your company has thoroughly researched these decisions and is not
creating unnecessary exposure by withholding shares in excess of
statutory minimums or other issues on excess withholding (see Barbara's
past two blog posts here and here). You should know in advance what these standard exceptions are and account for them in the reconciliation process.

more...http://www.naspp.com/blog/2008/12/year-end-employee-tax-withholding-reconciliation.html