II

107TH CONGRESS

1ST SESSION S. 1383

To amend the Internal Revenue Code of 1986 to clarify the treatment of

incentive stock options and employee stock purchase plans.

IN THE SENATE OF THE UNITED STATES

AUGUST 3, 2001

Mrs. CLINTON (for herself and Mr. ROBERTS) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to clarify

the treatment of incentive stock options and employee

stock purchase plans.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. EXCLUSION OF INCENTIVE STOCK OPTIONS

4 AND EMPLOYEE STOCK PURCHASE PLAN

5 STOCK OPTIONS FROM WAGES.

6 (a) EXCLUSION FROM EMPLOYMENT TAXES.—

7 (1) SOCIAL SECURITY TAXES.—

8 (A) AMENDMENT OF INTERNAL REVENUE

9 CODE.—Section 3121(a) of the Internal Rev10 enue Code of 1986 (relating to definition of
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1 wages) is amended by striking ‘‘or’’ at the end

2 of paragraph (20), by striking the period at the

3 end of paragraph (21) and inserting ‘‘; or’’, and

4 by inserting after paragraph (21) the following

5 new paragraph:

6 ‘‘(22) remuneration on account of—

7 ‘‘(A) a transfer of a share of stock to any

8 individual pursuant to an exercise of an incen9 tive stock option (as defined in section 422(b))

10 or under an employee stock purchase plan (as

11 defined in section 423(b)), or

12 ‘‘(B) any disposition by the individual of

13 such stock.’’.

14 (B) AMENDMENT OF SOCIAL SECURITY

15 ACT.—Section 209(a) of the Social Security Act

16 is amended by striking ‘‘or’’ at the end of para17 graph (17), by striking the period at the end of

18 paragraph (18) and inserting ‘‘; or’’, and by in19 serting after paragraph (18) the following new

20 paragraph:

21 ‘‘(19) Remuneration on account of—

22 ‘‘(A) a transfer of a share of stock to any

23 individual pursuant to an exercise of an incen24 tive stock option (as defined in section 422(b)

25 of the Internal Revenue Code of 1986) or under
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1 an employee stock purchase plan (as defined in

2 section 423(b) of such Code), or

3 ‘‘(B) any disposition by the individual of

4 such stock.’’.

5 (2) RAILROAD RETIREMENT TAXES.—Sub6 section (e) of section 3231 of the Internal Revenue

7 Code of 1986 is amended by adding at the end the

8 following new paragraph:

9 ‘‘(11) QUALIFIED STOCK OPTIONS.—The term

10 ‘compensation’ shall not include any remuneration

11 on account of—

12 ‘‘(A) a transfer of a share of stock to any

13 individual pursuant to an exercise of an incen14 tive stock option (as defined in section 422(b))

15 or under an employee stock purchase plan (as

16 defined in section 423(b)), or

17 ‘‘(B) any disposition by the individual of

18 such stock.’’.

19 (3) UNEMPLOYMENT TAXES.—Section 3306(b)

20 of such Code (relating to definition of wages) is

21 amended by striking ‘‘or’’ at the end of paragraph

22 (16), by striking the period at the end of paragraph

23 (17) and inserting ‘‘; or’’, and by inserting after

24 paragraph (17) the following new paragraph:

25 ‘‘(18) remuneration on account of—
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1 ‘‘(A) a transfer of a share of stock to any

2 individual pursuant to an exercise of an incen3 tive stock option (as defined in section 422(b))

4 or under an employee stock purchase plan (as

5 defined in section 423(b)), or

6 ‘‘(B) any disposition by the individual of

7 such stock.’’.

8 (b) WAGE WITHHOLDING NOT REQUIRED ON DIS9 QUALIFYING DISPOSITIONS.—Section 421(b) of the Inter10 nal Revenue Code of 1986 (relating to effect of disquali11 fying dispositions) is amended by adding at the end the

12 following new sentence: ‘‘No amount shall be required to

13 be deducted and withheld under chapter 24 with respect

14 to any increase in income attributable to a disposition de15 scribed in the preceding sentence.’’.

16 (c) WAGE WITHHOLDING NOT REQUIRED ON COM17 PENSATION WHERE OPTION PRICE IS BETWEEN 85 PER18 CENT AND 100 PERCENT OF VALUE OF STOCK.—Section

19 423(c) of the Internal Revenue Code of 1986 (relating to

20 special rule where option price is between 85 percent and

21 100 percent of value of stock) is amended by adding at

22 the end the following new sentence: ‘‘No amount shall be

23 required to be deducted and withheld under chapter 24

24 with respect to any amount treated as compensation under

25 this subsection.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to stock acquired pursuant to op3 tions exercised after the date of the enactment of this Act.

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