Page 34 - Virtual Currencies

8:29 - 7-Feb-2023
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Fileid: … tions/p525/2022/a/xml/cycle08/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
excess, along with any income earned on that Excess Contributions authority as a medium of exchange,” and that
amount, by April 15 of the following year. employee stock options aren’t “money remuner-
You must include the excess deferral in your If you're a highly compensated employee, the ation” subject to the Railroad Retirement Tax
income for the year of the deferral. File Form total of your elective deferrals made for you for Act (RRTA). Tier 1 and Tier 2 taxes aren’t with-
1040 or 1040-SR to add the excess deferral any year under a section 401(k) plan or SAR- held when employees covered by the RRTA ex-
amount to your wages on line 1a. SEP plan may be limited by the average defer- ercise stock options. Federal income tax must
Excess not distributed. If you don't take rals, as a percentage of pay, made by all eligi- still be withheld on taxable compensation from
ble non-highly compensated employees.
railroad employees exercising their options. If
out the excess amount, you can't include it in you receive an option to buy or sell stock or
the cost of the contract even though you inclu- If you contributed more to the plan than al- other property as payment for your services,
ded it in your income. Therefore, you're taxed lowed, the excess contributions may be distrib- you may have income when you receive the op-
twice on the excess deferral left in the uted to you. You must include the distribution in tion (the grant), when you exercise the option
plan—once when you contribute it, and again your income as wages on Form 1040 or (use it to buy or sell the stock or other property),
when you receive it as a distribution (unless the 1040-SR, line 1a. or when you sell or otherwise dispose of the op-
excess deferral was a designated Roth contri- tion or property acquired through exercise of
bution). If you receive a corrective distribution of ex- the option. The timing, type, and amount of in-
Excess distributed to you. If you take out cess contributions (and allocable income), it's come inclusion depend on whether you receive
the excess after the year of the deferral and you included in your income in the year of the distri- a nonstatutory stock option or a statutory stock
receive the corrective distribution by April 15 of bution. The allocable income is the amount of option. Your employer can tell you which kind of
gain or loss through the end of the plan year for
the following year, don't include it in income option you hold.
again in the year you receive it. If you receive it which the contribution was made that is alloca-
ble to the excess contributions. You should re-
later, you must include it in income in both the Nonstatutory Stock Options
year of the deferral and the year you receive it ceive a Form 1099-R for the year the excess
contributions are distributed to you. Add the dis-
(unless the excess deferral was a designated Grant of option. If you're granted a nonstatu-
Roth contribution). Any income on the excess tribution to your wages for that year. tory stock option, you may have income when
deferral taken out is taxable in the tax year in Even though a corrective distribution of you receive the option. The amount of income
which you take it out. If you take out part of the TIP excess contributions is reported on to include and the time to include it depend on
excess deferral and the income on it, allocate Form 1099-R, it isn't otherwise treated whether the FMV of the option can be readily
the distribution proportionately between the ex- as a distribution from the plan. It can't be rolled determined. The FMV of an option can be read-
cess deferral and the income. over into another plan, and it isn't subject to the ily determined if it’s actively traded on an estab-
You should receive a Form 1099-R for the additional tax on early distributions. lished market.
year in which the excess deferral is distributed The FMV of an option that isn't traded on an
to you. Use the following rules to report a cor- established market can be readily determined
rective distribution shown on Form 1099-R for Excess Annual Additions only if all of the following conditions exist.
2022. • You can transfer the option.
• If the distribution was for a 2022 excess The amount contributed in 2022 to a defined • You can exercise the option immediately in
deferral, your Form 1099-R should have contribution plan is generally limited to the full.
code 8 in box 7. Add the excess deferral lesser of 100% of your compensation or • The option or the property subject to the
amount to your wages on your 2022 tax re- $61,000. Under certain circumstances, contri- option isn't subject to any condition or re-
turn. butions that exceed these limits (excess annual striction (other than a condition to secure
• If the distribution was for a 2022 excess additions) may be corrected by a distribution of payment of the purchase price) that has a
deferral to a designated Roth account, your elective deferrals or a return of your af- significant effect on the FMV of the option.
your Form 1099-R should have codes B ter-tax contributions and earnings from these • The FMV of the option privilege can be
and 8 in box 7. Don’t add this amount to contributions. readily determined.
your wages on your 2022 return. The option privilege for an option to buy is the
• If the distribution was for a 2021 excess A corrective payment of excess annual addi- opportunity to benefit during the option's exer-
deferral, your Form 1099-R should have tions consisting of elective deferrals or earnings cise period from any increase in the value of
code P in box 7. If you didn't add the ex- from your after-tax contributions is fully taxable property subject to the option without risking
cess deferral amount to your wages on in the year paid. A corrective payment consist- any capital. For example, if during the exercise
your 2021 tax return, you must file an ing of your after-tax contributions isn't taxable. period the FMV of stock subject to an option is
amended return on Form 1040-X. If you greater than the option's exercise price, a profit
didn't receive the distribution by April 15, If you received a corrective payment of ex- may be realized by exercising the option and
2022, you must also add it to your wages cess annual additions, you should receive a immediately selling the stock at its higher value.
on your 2022 tax return. separate Form 1099-R for the year of the pay- The option privilege for an option to sell is the
• If the distribution was for the income ment with code E in box 7. Report the total pay- opportunity to benefit during the exercise period
earned on an excess deferral, your Form ment shown in box 1 of Form 1099-R on line 5a from a decrease in the value of the property
1099-R should have code 8 in box 7. Add of Form 1040 or 1040-SR. Report the taxable subject to the option.
the income amount to your wages on your amount shown in box 2a of Form 1099-R on
2022 income tax return, regardless of line 5b of Form 1040 or 1040-SR. If you or a member of your family is an
when the excess deferral was made. Even though a corrective distribution of ! officer, director, or more-than-10%
owner of an expatriated corporation,
Report a loss on a corrective distribution of an TIP excess annual additions is reported on you may owe an excise tax on the value of non-
CAUTION
excess deferral in the year the excess amount Form 1099-R, it isn't otherwise treated
(reduced by the loss) is distributed to you. In- as a distribution from the plan. It can't be rolled statutory options and other stock-based com-
pensation from that corporation. For more infor-
clude the loss as a negative amount on Sched- over into another plan, and it isn't subject to the
ule 1 (Form 1040), line 8z, and identify it as additional tax on early distributions. mation on the excise tax, see section 4985.
“Loss on Excess Deferral Distribution.” Option with readily determinable value.
Even though a corrective distribution of Stock Options If you receive a nonstatutory stock option that
TIP excess deferrals is reported on Form has a readily determinable FMV at the time it's
1099-R, it isn't otherwise treated as a Employee stock options aren’t subject to granted to you, the option is treated like other
distribution from the plan. It can't be rolled over Railroad Retirement Tax. In Wisconsin Cen- property received as compensation. See Re-
into another plan, and it isn't subject to the addi- tral Ltd. v. United States, 138 S. Ct. 2067, the stricted Property, later, for rules on how much
tional tax on early distributions. U.S. Supreme Court ruled that “money remu- income to include and when to include it. How-
neration” is “currency issued by a recognized ever, the rule described in that discussion for
Publication 525 (2022) Page 11