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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 81.16

-2.4%

Feb 4 3:59 PM EST

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To: Amy J who wrote (41169)	10/20/2000 10:13:21 AM
From: The Phoenix	Read Replies (2) of 77400

Amy J, I think you're making it wAAAAaaaay too complex. When an employee exercises an option they pay tax. Taxes are levied on the difference between the exercise price less the option cost basis. The employee pays state, federal, medicare, social security.... everything. The more the employee exercises the further up the tax brackets they move.... The tax rate charged is personal income tax rates. Many employee's choose to exercise when the stock price is down lowering the income tax burden. In this case they exercise and HOLD. They hold the exercise option (now personal stock) for 12 months and then pay cap gains on the difference between the sale price and the price at exercise. So, the government (fed and state) get income tax at the time of exercise AND they eventaully collect cap gains if the employee holds (rather than exercises and sells).... NOTE that the government gets income tax EVEN IF THE EMPLOYEE HOLDS THE STOCK. In essence the goverment is getting paid even if the stock continues to decline.. yes there may be tax credit on the back side. By the way - it gets worse when you consider the FED's AMT. OG

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