OT Mindmeld, here's the total employment tax bill per employee for wages earned:
Payroll Tax - Employee pays:
Soc Sec 6.2%
Medicare 1.45%
Federal* (% is dependent upon employee's income level)
State* (% is dependent upon employee's income level)
DBL .7%
Payroll Tax - Employer pays:
Soc Sec 6.2% (both Employee and Employer pay this)
Medicare 1.45% (both Employee and Employer pay this)
FUTA .8%
SUI 3.4%
===================
Total: 20.2% in employment taxes, *but this excludes State & Fed. This (20.2%) is before State & Federal* are taken out, so it gets even worse:
Total tax received (T) = Employment Tax (20.2%) + State & Federal*
T = 20.2% + E, (where E = State & Federal*)
Question: if an employee gains $X in stock options, how much Employment Tax does the government receive? Answer: 0.
Question: Okay, but does the government make up for this loss in 20.2% through other ways, like increased State & Fed tax? i.e. Does T = 20.2% + E = S? (we know T = 20.2% + E, but does T= S, where S is the Total taxes paid on stock options)
If True, then the government is indeed getting all of their taxes (and you are correct).
If False, then the government is not receiving all of their taxes (then the other fella is correct)
So, it appears the answer boils down to the following question:
Is E = S?
===> i.e. are the federal & state taxes paid on stock options for $X gained (this is "S"), the same as what an employee pays on state & federal* for $X earned through wages (this is "E")?
If yes (i.e. E = S), then this would mean the government is not receiving all the taxes (20.2%) they would have received if this was earned as wages, instead of options.
I don't know Cisco's stock options well enough to know what type of options they have and I don't know if T=S (although I rather doubt it, because it appears to neglect 20.2%), so, I wouldn't be able to determine which of you two folks are correct.
However, I know that mathematically, if the state & federal* taxes are identical for both: ($X earned by wages) - and - (for $X earned through stock options): then this means Employment Taxes (20.2%) have not been indirectly or directly paid. However, stock options fuel growth.
Regards,
Amy J |
