1. What is ESOP Perquisite Tax?

The ESOP perquisite tax is the income tax levied on the difference between the fair market value (FMV) and the exercise price when you exercise employee stock options in California. This is considered taxable income and is subject to both federal and state taxes.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( FMV \) — Fair Market Value per share at exercise (USD)
• \( Exercise\ Price \) — Price you pay to exercise each share (USD)
• \( Shares \) — Number of shares exercised
• \( Federal\ Rate \) — Federal supplemental tax rate (typically 22%)
• \( California\ State\ Rate \) — California state tax rate (typically 6.4%)

Explanation: The tax is calculated on the "bargain element" (difference between FMV and exercise price) multiplied by the number of shares and the combined tax rates.

3. Importance of Calculating Perquisite Tax

Details: Understanding this tax liability helps in financial planning when exercising stock options. The amount is typically withheld by your employer but knowing it in advance helps avoid surprises.

4. Using the Calculator

Tips: Enter the current FMV of the stock, your exercise price, number of shares, and applicable tax rates. Default rates are set to typical values (22% federal, 6.4% California).

5. Frequently Asked Questions (FAQ)

Q1: Is this the final tax I'll pay on my options?
A: This calculates the supplemental withholding tax. Your actual tax liability may differ based on your total income and tax bracket when you file your return.

Q2: What if my company withholds at a different rate?
A: Some companies withhold at higher rates (e.g., 37% federal) to cover potential additional taxes. You can adjust the rates in the calculator accordingly.

Q3: Does this apply to ISO or NSO options?
A: This applies to NSOs. ISOs typically don't trigger perquisite tax unless you have a disqualifying disposition.

Q4: Are there other California taxes to consider?
A: Yes, you may also owe California SDI (State Disability Insurance) tax of 1.1% on this income.

Q5: When is this tax due?
A: The tax is typically withheld by your employer at exercise, but you should consult a tax professional for your specific situation.