What are the tax implications of SARS?
A. There are no U.S. federal income tax consequences when an employee is granted SARs. However, at exercise an employee will recognize compensation income on the fair market value of the amount received at vesting. An employer is generally obligated to withhold taxes. Depending on the rules of an employee’s plan, the employer may satisfy that withholding obligation by withholding cash or shares. The remaining net proceeds will be deposited into a brokerage account. If an employee receives net shares and sells them at a later point, the appreciation in value of the shares from the time of exercise to the time of sale will be treated as a capital gain or loss. Whether it is a long-term or short-term gain or loss will depend on how long the shares are held.
