Client Alert

New Reporting Requirements on Form W-2 for Compensation from Employer Provided Nonstatutory Stock Options

On November 22, 2002, the Internal Revenue Service (the "IRS") issued Announcement 2002-108. Announcement 2002-108 reminds employers that, for Forms W-2 issued for the year 2003 and subsequent years, compensation resulting from employer provided nonstatutory stock options must be identified and reported in Box 12 of Form W-2 using Code V ("Income from the Exercise of Nonstatutory Stock Options").

Pursuant to IRS Announcements 2001-7 and 2001-92, reporting using Code V is optional for calendar years 2001 and 2002. Announcement 2001-92 also provides that, absent further guidance to the contrary, employers must report the income generated upon the exercise of nonstatutory stock options by using Code V in Box 12 of the Form W-2 beginning in the year 2003.

The IRS also noted that the forthcoming 2003 Form W-2 and its instructions will be consistent with Announcement 2002-108.




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