I 
108TH CONGRESS 
1ST SESSION 
H. R. 286
To amend the Internal Revenue Code of 1986 to clarify the treatment of 
incentive stock options and employee stock purchase plans. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 8, 2003
Mr. HOUGHTON (for himself, Mr. BARTLETT of Maryland, Mr. COX, Mr. 
CRANE, Mr. TOM DAVIS of Virginia, Mr. DOOLEY of California, Ms. 
DUNN, Mr. ENGLISH, Mr. FILNER, Mr. FOLEY, Mr. GILLMOR, Mr. 
HAYWORTH, Mr. HERGER, Mr. HONDA, Mrs. JOHNSON of Connecticut, 
Mr. SAM JOHNSON of Texas, Ms. LOFGREN, Ms. PRYCE of Ohio, Mr. 
QUINN, Mr. RAMSTAD, and Mr. SESSIONS) introduced the following bill; 
which was referred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to clarify 
the treatment of incentive stock options and employee 
stock purchase plans.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. EXCLUSION OF INCENTIVE STOCK OPTIONS 
AND EMPLOYEE STOCK PURCHASE PLAN 
STOCK OPTIONS FROM WAGES. 
(a) EXCLUSION FROM EMPLOYMENT TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Section 3121(a) of the Internal Rev-
enue Code of 1986 (relating to definition of 
wages) is amended by striking ‘‘or’’ at the end 
of paragraph (20), by striking the period at the 
end of paragraph (21) and inserting ‘‘; or’’, and 
by inserting after paragraph (21) the following 
new paragraph: 
‘‘(22) remuneration on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(B) Section 209(a) of the Social Security 
Act is amended by striking ‘‘or’’ at the end of 
paragraph (17), by striking the period at the 
end of paragraph (18) and inserting ‘‘; or’’, and 
by inserting after paragraph (18) the following 
new paragraph: 
‘‘(19) Remuneration on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)
of the Internal Revenue Code of 1986) or under 
an employee stock purchase plan (as defined in 
section 423(b) of such Code), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(2) 
RAILROAD
RETIREMENT
TAXES.—Sub-
section (e) of section 3231 of such Code is amended 
by adding at the end the following new paragraph: 
‘‘(11) QUALIFIED STOCK OPTIONS.—The term 
‘compensation’ shall not include any remuneration 
on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(3) UNEMPLOYMENT TAXES.—Section 3306(b) 
of such Code (relating to definition of wages) is 
amended by striking ‘‘or’’ at the end of paragraph 
(16), by striking the period at the end of paragraph 
(17) and inserting ‘‘; or’’, and by inserting after 
paragraph (17) the following new paragraph: 
‘‘(18) remuneration on account of—
‘‘(A) a transfer of a share of stock to any 
individual pursuant to an exercise of an incen-
tive stock option (as defined in section 422(b)) 
or under an employee stock purchase plan (as 
defined in section 423(b)), or 
‘‘(B) any disposition by the individual of 
such stock.’’. 
(b) WAGE WITHHOLDING NOT REQUIRED ON DIS-
QUALIFYING DISPOSITIONS.—Section 421(b) of such Code 
(relating to effect of disqualifying dispositions) is amended 
by adding at the end the following new sentence: ‘‘No 
amount shall be required to be deducted and withheld 
under chapter 24 with respect to any increase in income 
attributable to a disposition described in the preceding 
sentence.’’. 
(c) WAGE WITHHOLDING NOT REQUIRED ON COM-
PENSATION WHERE OPTION PRICE IS BETWEEN 85 PER-
CENT AND 100 PERCENT OF VALUE OF STOCK.—Section 
423(c) of such Code (relating to special rule where option 
price is between 85 percent and 100 percent of value of 
stock) is amended by adding at the end the following new 
sentence: ‘‘No amount shall be required to be deducted 
and withheld under chapter 24 with respect to any amount 
treated as compensation under this subsection.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to stock acquired pursuant to op-
tions exercised after the date of the enactment of this Act.
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