Non-qualified Stock Option Exercise and Social Security Benefits

Discussion in 'Tax' started by baumgrenze, Apr 30, 2005.

  1. baumgrenze

    baumgrenze Guest

    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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    baumgrenze, Apr 30, 2005
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  2. baumgrenze

    Guest

    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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    , May 2, 2005
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  3. baumgrenze

    A.G. Kalman Guest

    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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    A.G. Kalman, May 2, 2005
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