[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 697 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                 S. 697

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

                             March 24, 2003

   Mr. Hatch 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.

    Be it enacted by the Senate and House of Representatives 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) Amendment of internal revenue code.--Section 
                3121(a) of the Internal Revenue 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 incentive 
                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) Amendment of social security act.--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 incentive 
                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.--Subsection (e) of section 
        3231 of the Internal Revenue Code of 1986 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 incentive 
                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 incentive 
                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 Disqualifying Dispositions.--
Section 421(b) of the Internal Revenue Code of 1986 (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 Compensation Where Option 
Price Is Between 85 Percent and 100 Percent of Value of Stock.--Section 
423(c) of the Internal Revenue Code of 1986 (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 options exercised after December 
31, 2002.
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