For most folks looking for a job, especially in these tough employment times, the key factor is salary.
But benefits also are nice. The usual workplace offerings are medical insurance and a retirement plan.
And some companies even offer their employees added compensation via stock options.
Employee stock plans that allow workers to get a share of the company were very popular during the high-tech boom of the 1990s. We've all heard the tales of regular Joes and Janes who became Silicon Valley millionaires after cashing in their options.
Stock options are making a bit of a comeback. There's one big problem, though. Options can carry some surprising and hefty tax costs.
A recent national survey by Fidelity Stock Plan Services found that many employees who participated in stock option, stock purchase or restricted stock plans sold their shares without knowing the tax implications of their actions.
While the study found that company stock plans were the second most popular savings vehicle for the surveyed employees (workplace 401(k)s were first), more than half (52 percent) of those surveyed could only "generally" explain their stock plan. Eleven percent said that they could not explain their employee stock plan "at all."
Part of the problem is that there are two types of stock options: incentive stock options, or ISOs, and nonqualified stock options, or NSOs.
ISOs are taxed more favorably. You don't face a tax bill when you exercise them, but pay the Internal Revenue Service depending on your gain when you sell your shares. If you wait at least one year and a day after you purchased the stock options and at least two years since their original grant date, any long-term gain is taxed at the lower capital gains tax rate.
On the other hand, you owe ordinary income tax on NSOs.
Further complicating the matter is that some employees receive both types of options, meaning they need to make sure they handle each properly or pay the tax price.
And don't forget about the possible alternative minimum tax cost of stock options.
Now you understand why I'm not a fan of stock options. My motto when it comes to compensation is "say it with cash."
Judging from the Fidelity survey, a substantial portion of options grantees might be thinking the same thing.
The investment firm found that 35 percent of those surveyed don't know the tax implications of selling their stock. When looking for support in making options decisions, 10 percent said they don't research investment information and another 15 percent said they make all of their decisions on their own.
Only 18 percent told Fidelity pollsters that investment advisers were the first place they go for investment information. One-fifth (20 percent) said they go to brokerage services websites. Another 13 percent turn to friends and family, including their spouse, for investment advice.
My husband's a very smart man, and we make our investment decisions as a couple. But we're also wise enough to know that when it comes to an out-of-the-ordinary financial situation such as stock options, it's time to seek professional help. If we don't, we could end up negating any potential income windfall by paying Uncle Sam more than we should.
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