Janssen is an employee of Birch Corporation. On February 1, 2017, she received a nonstatutory stock...
Janssen is an employee of Birch Corporation. On February 1,
2017, she received a nonstatutory stock option from her employer
giving her the right to purchase 100 shares of Birch stock for $15
per share. The option is not traded on an established market, and
its value could not be readily determined when it was granted. On
September 4, 2018, Janssen exercised the option and purchased 100
shares of the stock. When she exercised this option, the fair
market value of the stock was $45 per share. How much compensation
does Janssen include in her 2018 income as a result of exercising
this option?
$0
$1,500
$3,000
$4,500
Homework Answers
Answer : 0
The government will tax the discount an employee is getting on purchase of shares acquired under ESPP as compensation income. And this discount is the difference between the Offered price and fair price on the end date of the offer period.
However, the above discount is only taxed when the shares are sold and in the year in which the shares acquired under ESPP are sold. Since Janssen only exercised the option of purchasing shares in 2018 and the shares were not yet sold in 2018, nothing needs to shown under compensation as a result of exercising this option.
Compensation needs to be reported as a result of exercising this option only in the year when the shares are sold, and nothing in 2018.
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