Will your exec comp be subject to expanded Medicare taxes? Maybe. The following types of executive compensation could be subject to the health care act’s 0.9% additional Medicare tax:
- Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
- FMV of restricted stock when it’s awarded if you make a Section 83(b) election
- Bargain element of nonqualified stock options when exercised
- Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture
And the following types of gains will be included in net investment income and could trigger or increase exposure to the act’s new 3.8% Medicare contribution tax:
- Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
- Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements
Contact us – we’d be happy to help you determine the best strategy for your exec comp. With smart timing, you may be able to reduce or avoid exposure to the expanded Medicare tax.
