IRS Provides Guidance on Stock Options and Restricted Stock Units Tax Benefit for Private Corporations’ Employees

December 7, 2018

The Internal Revenue Service recently issued Notice 2018-97, offering guidance on a recent tax law change that allows qualified employees of privately-held corporations to defer paying income tax for up to five years on the value of qualified stock options and restricted stock units (RSUs) granted to them by their employers. 

The tax law change was included in the 2017 Tax Cuts and Jobs Act (TCJA). In general, executives, highly-compensated officers and those owning 1 percent or more of the corporation’s stock cannot make the deferral election. Federal Insurance Contributions Act (FICA) tax and Federal Unemployment Tax Act (FUTA) tax payable on the value of qualified stock may not be deferred.

Notice 2018-97, posted on the IRS website, offers initial guidance taxpayers can rely on until proposed regulations are issued and requests public comment on additional issues that should be addressed in those regulations.

Updates on this and other TCJA provisions can be found on the Tax Reform page of the IRS website.