Month-End Benefits Reminders

Benefits Brief
January 20, 2010

Reminder of ISO/ESPP Reporting Obligations . . . .

On or before February 1, 2010, every corporation that issued stock pursuant to the exercise of an incentive stock option (ISO) during 2009 must provide the optionee a statement containing certain information. The statement is required even if the optionee disposed of the stock in a “disqualifying disposition,” and, if there was a disqualifying disposition, there are additional reporting obligations. The tax law also requires corporations to provide certain information to an individual who transfers shares acquired pursuant to an employee stock purchase plan (ESPP). A failure to satisfy either of these requirements, absent reasonable cause, can result in a $50 penalty with respect to each failure. (Penalties are capped at $100,000 per calendar year.)

In 2006, the Internal Revenue Code was amended to provide that additional information must be provided to individuals in the situations described above and that information must also be filed with the Internal Revenue Service (IRS). Last fall, the IRS published final regulations addressing these requirements but also providing one final IRS filing reprieve. That is, with respect to 2009 transfers, corporations may continue to rely on earlier guidance regarding information that must be reported to individuals and IRS-level reporting is not required. Beginning with 2010 transfers, additional individual-level disclosures will be required and IRS information statements must be filed with respect to those transfers. The IRS is expected to release Form 3921 (for ISOs) and Form 3922 (for ESPPs) shortly. It is anticipated that a corporation will be able to use these forms to satisfy the reporting obligation both to the IRS and to individuals, just as a Form W-2 or 1099 does now.

If you would like samples of individual-level statements or more information on the additional information required under the final regulations, please let us know.

. . . . Limited 409A Reporting . . . .

Employers will eventually be required to report certain amounts deferred under a nonqualified deferred compensation plan subject to Internal Revenue Code Section 409A in Box 12 of Form W-2 using code Y (or in Box 15a of Form 1099-MISC for nonemployees), but the IRS has postponed these reporting requirements until further notice. However, the requirement to report nonqualified deferred compensation currently includable in income as a result of a violation of Internal Revenue Code Section 409A in Box 1 and in Box 12 of Form W-2 using code Z (and in Box 7 and Box 15b of Form 1099-MISC for nonemployees) has not been postponed.

. . . . And Massachusetts Health Care Reform Reporting Requirements

Under Massachusetts health care reform, on or before January 31st of each year employers must issue a written statement on Form MA 1099-HC to each Massachusetts resident who participates in an employer-sponsored health plan, whether through an insured or self-insured arrangement. A filing with the Commonwealth is also required. Employers may contract with a service provider or insurance carrier to issue the Form MA 1099-HC, a copy of which is available on the Department of Revenue’s Web site. Failure to issue the statement may result in a penalty of $50 for each failure. (Penalties are capped at $50,000 per employer per calendar year.)