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Non-qualified Stock Option Exercise and Social Security Benefits

 
 
baumgrenze
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      04-30-2005, 10:22 PM
I hope that this question is not considered 'off topic.'

I have some questions about exercising a non-qualified stock
option after retirement, once one is collecting Social
Security.

It is clear that taxes are due on the difference between the
exercise price and the option price, whether or not one
sells the shares that are acquired in the transaction. In
fact, at the time of exercise the former employer withheld
income tax, FICA, and Medicare taxes.

What is not clear is this. If one is under 65.3 years of
age, wages reduce one's social security benefits. Does
'income' from a NQSO have the same impact on benefits?

Thanks,

John

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DORFMONT@aol.com
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      05-02-2005, 05:34 AM
I have argued with the SSA about these kind of issues. My
clients have received termination payments of some kind
(unused vacation, sick leave, etc.) or residuals from
performances recorded decades ago. I have also argued about
life insurance commissions paid to an agent no longer
employed. In all cases the SSA is concerned about work being
performed currently and income being paid. It is clear in
your case that you are merely purchasing stock which your
former employer gave rights to. No work is being done
although the income may be reported on a W-2. Just explain
it to them and send proof of your retirement from the
employer.

Linda Dorfmont E.A., CFP, CSA

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A.G. Kalman
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      05-02-2005, 05:34 AM
baumgrenze wrote:

> I hope that this question is not considered 'off topic.'
>
> I have some questions about exercising a non-qualified stock
> option after retirement, once one is collecting Social
> Security.
>
> It is clear that taxes are due on the difference between the
> exercise price and the option price, whether or not one
> sells the shares that are acquired in the transaction. In
> fact, at the time of exercise the former employer withheld
> income tax, FICA, and Medicare taxes.
>
> What is not clear is this. If one is under 65.3 years of
> age, wages reduce one's social security benefits. Does
> 'income' from a NQSO have the same impact on benefits?


If you are still employed by that employer then your income
from the exercise of the options is wages included as earned
income for purposes of the SSA earnings limit test. If you
are no longer employed by that employer, then the income
from the exercise is not counted as income for purposes of
the SSA earnings limit test.

--
Alan
http://taxtopics.net

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