Tax Bill Leaves ESOPs Untouched; Encourages Equity Sharing in Closely Held Companies

The tax bill now before the Senate, and the bill that passed the House, contain no provisions directly affecting ESOPs, nor do they contain previous provisions that would have taxed stock awards at vesting. Both bills also contain a provision allowing employees in closely held companies that provide equity to 80% of their employees to defer taxation on unexercised awards until up to five years after they leave the company. However, the tax is computed based on when the award vests, even if that number ends up being higher than when exercised.