Tax on Share Based Income Arising From Employment
Tax rules covering Share Based Income, such as –
- Restricted Stock Units (RSU’s),
- Share Options (RTSO – Relevant Tax on Share Options due),
- Save As You Earn Share Option Schemes (SAYE) and
- Profit Sharing Schemes
are complex and the whole process can be intimidating to employees.
Your employer is obliged to account for tax you owe in some cases, whereas in other cases you are obliged to account for the tax liabilities.
If your employer company has quoted shares, such as Google, Facebook, LinkedIn, Twitter or Paddy Power for example, you may be entitled to share based income as some stage in your career. We can assist you –
- Compute the tax owed, if any, on all your share transactions
- Advise on the most tax efficient manner to deal with your shares and of course
- Ensure you are tax compliant
Your first step is to establish what type of share income you received. Below you can read our guide to the basics of each type of share income – Feel free to call us anytime on 014977651 and we would be delighted to assist you take the first step, which is to identify the type of share income you have received.
Dividends (Subject to DWT, Income Tax, USC, PRSI)
Dividends are payments by a company to you as a reward for owning a share in the company. If you are resident in Ireland, Dividend Withholding Tax (DWT) of 20% will be deducted before you receive dividend payments and other distributions made by an Irish resident company. Irish individual shareholders are taxable on the gross dividend at their marginal rate of tax but are entitled to a credit for the tax withheld by the company paying the dividend and to a refund of the balance where the withheld tax exceeds their tax liability. You will be required to register for income tax if you are in receipt of this type of income and a tax return must be filed by the 31st of October in the year after the year in which you received the dividend. We can assist you prepare and file same – get in touch now 014977651.
Restricted Stock Units (RSU’s) – Subject to Income Tax, USC, PRSI, CGT
You may be granted “restricted stock units“, or RSUs at some point in your employment. These are shares that will, one day, when they “vest”, be in your ownership and you will be allowed to retain or sell them on. However you do not own them until they “vest”, therefore they are called “restricted” stock units.
When the shares eventually vest in your name, your employer is obliged to deduct Income Tax, USC and PRSI through your payroll. This has been the case for restricted stock units vesting since 01/01/2011.
If you ever decide to sell on your RSUs, you will be liable to a different tax, capital gains tax (CGT), on the difference between the net proceeds you receive and the value of the shares at the date of vesting. The current CGT rate in 2012 is 30%. If you dispose of the restricted stock units in the period 1st of January to 30th of November, CGT is payable by the 15th of December. If you dispose of shares in the period 1st of December to 31st of December, you have until the 15th day of the following month i.e. January, to pay same.
Share Options (Unapproved Scheme) – Subject to Relevant Tax on Share Options (RTSO), CGT
Share Options are also subject to “vesting” – that is, they may not be in your ownership for a certain amount of agreed time, so you may not be able to exercise a Share Option immediately.
You will usually be “granted” a Share Option price initially, which is usually the market value of the shares at the date of the grant (if the option price is granted to you below market price on the date of grant, you may be subject to an immediate tax liability, so please contact us if this is your case).
Once the share option vests in your name, you can exercise that option – that is, you can purchase the share at that price, irrespective of whether the market value of the share may be higher. If you sell your shares through a broker, the broker will usually exercise the share option and sell the resulting shares purchased in the same transaction, so that you will have funds to exercise the option and purchase the shares. The broker will just pass the gain you made onto you, which is the difference between the option price exercised and the market value on the date of sale of the shares.
You must pay a separate type of tax on this gain, known as Relevant Tax on Share Options (RTSO) and this tax is due within 30 days of the date the share option is exercised. You are required to pay Income Tax, USC and PRSI on this gain, and your employer will not account for this, the onus is on you to pay the Relevant Tax on Share Options (RTSO). You must also declare any such gains in your income tax return, so you will also be required to register for income tax in relation to this income source and to file an RTSO1 form with the Revenue Commissioners. We can arrange all of the above for you – call us now – anytime! 014977651.
If you exercise, but do not sell the shares immediately, you may be subject to a capital gains tax (CGT) liability, in addition to the Relevant Tax on Share Options (RTSO), when you eventually sell the shares. If you dispose of shares in the period 1st of January to 30th of November, CGT is payable by the 15th of December. If you dispose of shares in the period 1st of December to 31st of December, you have until the 15th day of the following month i.e. January, to pay same.
Save As You Earn Schemes (SAYE) – Subject to USC, PRSI, CGT
In these types of schemes, you, the employee would agree to save fixed amounts from after tax salary over a fixed period of time to purchase your employer company’s shares at a discount. These schemes are a combination of a share option scheme and a tax efficient savings plan. Employees participating in SAYE, or Save As You Earn schemes are not exposed to a fall in share price as they can elect not to purchase the shares at the end of the savings term and withdraw their funds along with any tax free interest or bonus earned.
The employer can offer you an option price that is up to 25% less than the market value of the shares at the date of grant of the scheme. These schemes exempt you from paying income tax on the gain you make on this discounted option price. You will still be liable to USC and PRSI on this gain however and your employer will be obliged to deduct this. If, when you exercise the option, you are no longer employed by the employer that granted you the scheme, you, not your employer, will be required to account for the USC and PRSI due on the gain.
You will also be subject to a possible capital gains tax (CGT) liability when you eventually sell the shares you received through the Save As You Earn scheme and the liability will be subject to the same payment dates as above i.e. If you dispose of shares in the period 1st of January to 30th of November, CGT is payable by the 15th of December. If you dispose of shares in the period 1st of December to 31st of December, you have until the 15th day of the following month i.e. January, to pay same.
Approved Profit Sharing Schemes (APSS) – Subject to USC, PRSI, CGT
An APSS is a way of rewarding you by allocating shares in the employer company (or in its parent company) in a tax effective manner. With this type of scheme your employer can award shares to be held in a trust of up to €12,700 per annum, and you can be exempt of income tax on receiving the shares (on appropriation of the trust). The value you receive will be subject to USC and PRSI however.
If you have any query at all in relation to share based remuneration, please complete the contact form to your right to arrange a call back or Free Initial Consultation – evening or weekends!