Restricted Stock Tax Obligations for Board Members paid via 1099
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Please forgive if this is a 'no-brainer,' but I need some help.
Our Board of Directors received Restricted Stock awards last year -- half of them have now vested.
They (BOD members) are not compensated as employees, so we will line-item the FMV of the vested shares on the 1099. QUESTION: Is the company obligated to do more than notify each member that they are now responsible for the tax on the FMV of these vested shares or do we need to withhold/submit taxes on their behalf?
Would truly appreciate any guidance you can provide. Thank you!
PS: I try to be proactive in these situations, but was just notified that the awards existed by my Payroll department on Friday when the quarterly Board payment request was submitted.
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This is not a no=brainer. It is a common question for professional handling these plans early on.
In answer to your question: The company has no obligation to withhold taxes, and, in fact, should NOT withhold taxes for non-employees (this would be different for "employee directors".) A 1099 will need to be provided showing the spread on the date of vesting.
Second, I am assuming that these have been tracked in some sort of system since the award date. You may want to confirm that the accounting (expense and corporate taxes) have been done properly since award. Please let the ECE membership know if you have furterh questions on this.
Dan
Thanks, Dan. I will check with our finance group about the expensing and taxes, but I have a question on the taxable value: The stock has declined in value since the award date, but as no Director made an 83(b) election, is the taxable amount the FMV at the vesting date (e.g. there is no 'spread')?
Example: Stock value at award date: $3/share 100 shares awarded == $300 value at grant
Stock value at vesting date: $1/share 50 shares vest == $50 FMV
Taxes due on $50?
The taxes will be on the amount of Ordinary Income at the time of vest. This is equal to the Fair Market Value (as defined in your plan) on the date of vest minus Award Price (the amount paid for the share or units).
In your example It appears that nothing was paid up front for the shares ($0.00 award price) and that the FMV on the vesting date is $1.00. So, your calculation of $50.00 is correct.
It also sound like these are truly restricted stock (not units), since you have asked about the 83(b) Election possibility. If this is correct then you will also want to make sure that the underlying shares have been issued and outstanding since the award date.
Thanks for your quick and helpful education, Dan. Yes, they are actual Restricted Shares (not units) that were awarded (-0- award price). I will verify with my Finance team that they've been appropriately issued and accounted for.
One last question -- is there any accelerated tax reporting required (as for employees who are taxed at the vest date), or is year-end via the 1099 sufficient?