Understanding Stock Option Dispositions
This section lists prerequisites and common elements and discusses:
Stock option dispositions.
Disposition processing.
Disposition reports.
Before you begin recording stock option dispositions:
Process optionee exercises and releases.
Receive information about dispositions from optionees, transfer agents, or brokers.
Field or Control |
Description |
|---|---|
EmplID |
Click the EmplID number to access the Employee Information page, where you can view employee information. |
Shares Self Service |
Displays the number of shares that are reported as disposed through the self-service page and that have a status of self-service. |
Shares Disposed |
Displays the number of disposed shares that have a status of confirmed. |
Shares Available |
Displays the number of shares available. This equals (Shares Issued) − (Share Pending) − (Shares Self Service) − (Shares Disposed). |
Disposition Number |
Displays NEW when you enter a disposition. When you save, the system generates a sequential disposition number from the last disposition number stored in the Stock table. |
Status |
The default for a new record is Pending, unless the shares were already sold through a same day sale or a sell to cover transaction. Then, the status is Confirmed. When the status is changed to Confirmed, ordinary income can be sent to Payroll for North America by a transaction record or displayed on a manual payroll report when saved. If you must change a transaction that's been sent to payroll, set the status to Void. If an optionee reports a disposition through the self-service page, the status is Self Srvc (self service) until you set it to Confirmed, either by running the Confirm Self Service process or changing the status to Confirmed online. |
Status Date |
Displays the date on which the status was last changed and saved. |
Sent to Payroll Date |
Displays the date on which the transaction was sent to payroll or the day on which the manual report was run. |
Sent to Payroll Source |
Displays the way in which the income and taxes were sent to a payroll, either through Payroll for North America or a manual report. |
Paycheck Number |
Displays the paycheck number when the transaction was processed through Payroll for North America. This field is blank if a manual report was used. |
After shares are exercised or released, optionees can sell or transfer shares. Depending upon the option type and the holding period requirements, your company might be entitled to a tax deduction equal to the optionee's ordinary income on a disposition.
You can record and track dispositions, determine if they are disqualified, and, if you use Payroll for North America, send the ordinary income calculated on disqualifying dispositions directly to payroll for processing.
When you enter a disposition for an ISO or an ISO/SAR, the system checks the 422 plan rules defined on the Governing Body Rules - Stock Option Rules page to determine if the required holding period is met for preferential tax treatment. If the disposition does not meet the holding period requirements, the system calculates the ordinary income for the shares disposed. If the ordinary income is reported on a Form W-2, a company can take it as a tax deduction. If the disposition date meets the holding period requirements, the system does not calculate ordinary income.
Ordinary income calculated on a disqualifying disposition is based on the income method rule that is specified on the Stock Option Plan Rules - Payment/Income Methods page for ISO sales. This rule determines the price that is used to calculate the ordinary income on the disposition. The value also depends on whether the transaction is an exercise or a release, and if the optionee filed an 83b election.
Disqualifying dispositions are calculated for ISOs and ISO/SARs in these ways:
Exercise of Vested Shares
Holding Period: Calculated from the exercise date.
Ordinary Income Calculation:
[(Sale Price or Exercise FMV or lesser of the two) × Shares Disposed)] − (Grant Price × Shares Disposed)
Release with No 83b Election Filed
Holding Period: Calculated from the exercise date.
Ordinary Income Calculation:
[(Sale Price or Release FMV or lesser of the two)] × Shares Disposed) − (Grant Price × Shares Disposed)
Release with 83b Election Filed
Holding Period: Calculated from the exercise date.
Ordinary Income Calculation:
[(Sale Price or Exercise FMV or lesser of the two) × Shares Disposed)] − (Grant Price × Shares Disposed)
You might want to survey the transfer agents, brokerages, and the optionees to determine if a transaction represents a true disposition or a transfer from one brokerage account to another. You can enter all information received from transfer agents or brokers concerning potential dispositions into the system with a pending status.
When the individual, transfer agent, or broker confirms a disposition, change the status to confirmed. If the disposition is disqualified, you can send the ordinary income to payroll to include it on the individual's W-2.
If you use Payroll for North America, you can automatically send the income information to payroll for processing. If you do not use Payroll for North America, or the optionee is not paid through this payroll system, run the Disqualifying Disposition Payroll report and send it to your payroll administrator for processing. Stock Administration displays the date on which you transmitted the data or ran the report.
Disposition Adjustments and Cancellations
If you must adjust or cancel a disposition after you've sent the ordinary income to payroll, change the status of the transaction to void and add a new disposition to the record. If the disposition was created by a same day sale or sell to cover transaction, make the change using the Exercises or Releases components, as appropriate. If you use Payroll for North America and the transaction has not been processed by Payroll for North America, the system deletes the transaction from the table. You receive a message that the transaction was successfully deleted. If Payroll for North America processed the transaction or you ran the manual payroll report, run the Disqualifying Disposition Reversal report and give it to your payroll administrator.