Finance Committee Bill Also Makes Changes to Stock Options and ESPPs

As passed by the Senate Finance Committee, the "National Employee Savings and Trust Equity Guarantee Act" would prohibit employees from deferring taxation on stock options, restricted stock, or other equity arrangements by electing to defer any compensation until some point after the exercise of the award. Additionally, the bill would exclude from withholding taxes the income from exercising employee stock purchase plan options and the income from disqualifying exercises of incentive stock options. These exercises are not currently subject to such taxes, but only because the IRS has put an indefinite hold on a proposal to do so. The withholding proposal was passed by the House Ways and Means Committee as part of H.R. 1776, but no further action on that bill is planned in the House. The deferral of tax provision is not contained in House pension reform legislation.