Expert: Arthur Naman - 6/16/2009

Question
I work for a small company where we get a bonus at the end of the year for meeting our yearly numbers. My boss decided he did not want to pay us our 2007 bonus in cash  so he opened  up an "employee stock program" and rolled my $7500 bonus in the program. Now mid-2009 his accounting firm is saying that we (the employees)have to pay payroll taxes on that money...is this correct?

Answer
Keep in mind that an employee stock option plan is a type of pension plan. As such, it is not a bookkeeping question per se, rather a pension question. It is likely that contributions to an employee stock purchase plan are subject to federal withholding and payroll taxes

I am not sure what the rules are as for as not giving employees the option of whether or not to choose to be included in the stock purchase plan. I am under the impression that it is the employee's choice, but as I said I am not certain.

The bonus would have been taxable if you had received cash, so your having to report the contribution to the stock purchase plan as taxable is no different.

Additional considerations:  was the purchase of the company stock at a reduced value? Can you immediately resell the stock? If the company has restrictions on the sale of the stock, then that may affect the situation.

If you in fact have to pay taxes, then your employer will have to re-issue the annual W-2; you will then have to file an amended individual tax return.