Nonqualified stock options and FICA

[Guest sgriff]

Is FICA withholding due on a nonqualified stock option which is exercised 5 years after the optionee's termination of employment with his employer (who issued the options)?

I know the general rule is that FICA is due upon exercise of a nonqualified stock option, but in this case, the employee is no longer working for the employer and five years have passed - does any of this make a difference?

[Guest EAKarno]

Yes, FICA withholding is required because the compensation still relates to the services performed as an employee.

[Guest sgriff]

Thanks for your reply . . .

But there is a private letter ruling (PLR 8043113) that discusses the issue of whether shares of stock delivered and cash payments made pursuant to the exercise of an Option are considered to have been paid upon or within a reasonable time after the termination of an employee's relationship within the meaning of Sections 31.3121(a)(13)-1(a) and 31.33-06(B)(10)-1(a).

I thought perhaps this might apply or at least was hoping for a similar argument.

[Guest Harry O]

The rule that payments made after retirement were exempt from FICA was repealed in 1983. Those provisions no longer apply. EA Karno's reply is correct. There is no debate about this issue (unfortunately for both the employer and employee!).

[Guest ubpMR]

What about FUTA regarding the same situation? Is that required along with FICA?