The Internal Revenue Service recently released Publication 15-T, "New Withholding Tables for 2001". The most significant change from an employee benefits or executive compensation perspective is that the supplemental income tax withholding rate (which applies, among other things, to cash bonuses and to income from the exercise of nonqualified stock options or from the vesting of restricted stock) was decreased from 28% to 27.5%.

If your company's stock incentive plans permit share withholding to satisfy the income tax withholding obligations caused by the exercise of a nonqualified stock option or the vesting of restricted stock, after August 6, 2001, this withholding should normally be done at the 27.5% rate and not the 28% rate. FIN 44, the most recent guidance from the Financial Accounting Standards Board (FASB) regarding the financial accounting treatment of equity compensation, states that variable accounting treatment (potentially requiring a charge to compensation expense) could be required if share withholding is done at a rate higher than the required withholding rate. If you choose to withhold at a rate in excess of 27.5%, you may wish to consult with your auditors regarding the financial accounting treatment of that excess withholding.

For further information regarding anything contained in this client release, please contact your regular Powell Goldstein contact or one of the following benefits professionals. If you are interested in more information about our Employee Benefits and Executive Compensation practice, please go to our practice page on this web site.