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Stock options - member advice (Updated Dec 11, 2020.)
This topic is covered in the HPAA's Finance Forum. Discuss U.S. pension, employee stock, Social Security, and other personal finance issues from an ex-HP/HPInc/HPE perspective. Moderated. Join the HPAA Finance Forum
Main HPAA page on stock issues -- contacts, employee stock, stock records, cost basis, options, SARs, etc. https://www.hpalumni.org/stock
Questions or comments to: email@example.com
How employee stock options work
From the advertiser-supported "Investopedia" financial education site:
Restricted Stock Grants "...give employees the right to acquire or receive shares once certain criteria are attained, like working for a defined number of years or meeting performance targets."
Stock Appreciation Rights "...provide the right to the increase in the value of a designated number of shares; such increase in value is payable in cash or company stock."
"The vesting period is the length of time that an employee must wait in order to be able to exercise their ESOs. Why does the employee need to wait? Because it gives the employee an incentive to perform well and stay with the company. Vesting follows a pre-determined schedule that is set up by the company at the time of the option grant."
Merrill Lynch education page on equity awards, such as company stock:
HP/HPInc/HPE stock option issues
Your stock option situation is settled when you leave the company.
From the HPAA's unofficial ASAP Checklist. Member advice on what to do before losing access to company systems -- and in the following few weeks.
7. Stock options or
Tax aspects of employee stock options
[If you exercised stock options last year, you need both a 1099-B and a W-2. How to obtain your option-exercise W-2. ]
Employee stock options allow the holder to purchase shares at the specified ("strike") price after a defined holding or vesting period.
The options that most HP, HPInc, and HPE employees receive are termed "non-qualified" -- and do not have a value that can be determined before they are exercised:
- You do not realize any income when the options are GRANTED. (Unlike stock acquired through employee stock purchase and service awards.)
- When the options are exercised, the difference between the market price and the exercise price (that is, the discount times the number of shares) is treated as wage income. HP withholds taxes (including Social Security and Medicare tax) and issues a W-2 -- even if you are no longer an employee. This is income realized at the time of the EXERCISE.
Intuit's TurboTax website has an explanation and
some example tax scenarios:
When options are exercised, Merrill Lynch mails a
tax summary, which can also be downloaded from the Merrill Lynch website:
Note that the Merrill Lynch tax summary is only for reference. What HP has reported to the IRS is given on the W-2 form you received from HP.
(Here are HPAA's directions on how to get a missing HP W-2 -- including how to download immediately.)
[Marc Lee, Tom von Alten -- Apr 13, 2014]
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As financial, legal, and personal advice must be tailored to the specific circumstances of each case, and finances and laws are constantly changing, nothing provided here should be used as a substitute for the personal advice of competent financial, legal, and personal advisors.
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