MInimum tax withholding for equity grants for states such as CT

I haven't deal with this in years, but I have dealt with it many times.

In most cases the company made the decision to withhold at the highest rate and let the employee handle the correction.  Some auditors have seen this as withholding above the statutory rate and stopped the practice.

More recently I spoke to someone who created a multi-step process.

Step 1: Calculate at the time of exercise, using the highest rate

Step 2: Send this o payroll and have the calculate using the most specific rate possible

Step 3: modify the exercise, prior to settlement, with the exact amount owed.

Step 4 settle the transaction.

I am absolutely sure that others in the ECE will have different, and probably better, processes for this specific issue.

Dan

Best way to handle this would depend on the equity vehicle, and which outsourcing/software solution you are using.  In any case, here are some general comments you might find useful:

If your plan allows for, and your software/broker can support, the "sell-to-cover" method to collect taxes, you can use the top marginal state rate and let the trade settle.  You then reconcile after the transaction is completed to calculate and give back any overwithholding via payroll (since you are not withholding any shares, your auditor should not raise any concerns).

Alternatively, some stock plan admin systems/vendors can set up a file feed to your US payroll system to have the payroll system calculate the precise federal and state tax withholding by T+2 (for stock option exercise).  I would caution you that this does not work 100% of the time for 100% of the transactions, so you'd want to keep a careful eye on this process and understand what your broker will when something goes wrong.

For RSU releases, you don't really have to set up a file feed between your stock system and payroll system.  You can coordinate with payroll to exchange pre-release data from the stock system and have the payroll-calculated taxes uploaded into stock system before share release is processed (any thoughtfully designed stock plan recordkeeping system should allow for this function type of transaction-specific override).

If you let me know who your outsourcing/software vendor is, I can give you more specific guidance on this (my firm specializes in vendor selection/optiminization services).  Please feel free to email me.

Best regards,

Jewon (jewon.wee@ispadvisors.com)