Herding Cats: The Muddled State of State Income Tax Withholding for Income Earned by Nonresidents from the Exercise of Stock Options

Daily Report for Executives
03.30.09
Tom Cryan and Garrett Fenton authored an article on state income tax withholding for income earned by nonresidents from the exercise of stock options. This issue has largely been left to the discretion of individual states to determine whether, and to what extent, to tax stock option income paid to employees, or former employees, who are nonresidents at the time of exercise, and has drawn increased attention from state tax authorities in recent years. The article focuses on federal prohibition on state source taxation of retirement income, state taxation of nonresident option income, the rise in state audit activity, and the need for federal legislation in this area.
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