More and more employers are looking at share schemes as a way of rewarding their employees. In this blog we look at the tax implications where you receive shares from your employer. The tax implications here typically depends on the type of scheme provided.
The different types of share schemes include:
Approved Profit Sharing Schemes
This allows a full or part-time employee or a full-time director to receive shares tax free from their employer up to an annual limit of €12,700 provided certain conditions are met. Shares appropriated to employees on or after 1 January 2011 under Revenue approved profit sharing schemes will continue to be exempt from income tax but will be subject to employee’s PRSI and the universal social charge.
A share option arises when a company grants to its employees or directors an option to subscribe for shares in the company at a preferential price. A taxable benefit arises when the predetermined share price is less than the market value.
The amount liable to tax is the difference between the market value of the shares at the exercise date and the price you actually pay. This liability arises at the date you exercise the option. Capital Gains Tax may also be payable on the shares if they increase in value from the date you exercise the option.
If you receive stock options from your employer, you are liable to tax under self-assessment in respect of the profit arising from the stock options. Income tax is payable to the collector general 30 days from the date of exercise of stock options. You should complete Form RTSO1 and forward it together with a cheque for the income tax to the Collector General. You should also submit details of the share options received on your annual tax return – Form 11. USC and PRSI must also be paid at the same time as the income tax using RTSO1.
The income tax payable is 40% of the net cheque received – i.e. 40% of the difference between the sales price of the shares less the option price. If you think that your entire income tax liability for the year will be chargeable at the standard rate of income tax (currently 20%) you must obtain prior approval from Revenue to pay tax at the standard rate.
SAYE (Save as You Earn Scheme)
SAYE is the most common form of a saving related share options scheme. It contains a contractual savings scheme with a share options scheme. Under an approved SAYE scheme a company grants options over shares to its employees.
These schemes operate by allowing the employee to save between €12 and €500 per month out of their net income over a 3, 5 or 7 year period in order to finance the purchase of the shares. Any interest or bonus paid on the savings contract will be exempt from tax including DIRT.
Options granted through a SAYE scheme approved by the Revenue Commissioners will not be liable to income tax on either grant or exercise provided the option is not exercised before the third anniversary of the grant. After this time any disposal of the shares will trigger Capital Gains Tax based on the excess of the net sales proceeds over the actual option price. Gains on options granted on or after 1 January 2011 will be subject to PRSI and USC.
ESPP (Employee Share Purchase Plan)
This operates whereby a fixed amount is deducted from your salary every month. After the end of a fixed period you purchase shares in your employers company at a discounted price. This discount is a taxable benefit and subject to income tax. Capital Gains Tax will be payable on the eventual sale of the shares. An employee may be prohibited from selling the shares for a couple of years, Revenue will allow an abatement in the income tax charge depending on the number of years of the prohibition on the disposal.
RSU (Restricted Stock Unit)
This is a promise to an employee to the effect that on completion of a vesting period they will receive a number of shares. The income tax charge arises on the date of vesting of a RSU or where the shares pass to the employee on a date prior to the date of vesting.
If you have any queries regarding your obligations to Revenue on receipt of these shares, book a call or email firstname.lastname@example.org