Compilation of Rules and Regulations of the State of Georgia
Department 560 - RULES OF DEPARTMENT OF REVENUE
Chapter 560-7 - INCOME TAX DIVISION
Subject 560-7-4 - NET TAXABLE INCOME (INDIVIDUAL)
Rule 560-7-4-.05 - Deferred Income and Stock Options of Taxable Nonresidents
Universal Citation: GA Rules and Regs r 560-7-4-.05
Current through Rules and Regulations filed through September 23, 2024
(1) Purpose. The purpose of this rule is to provide guidance regarding the administration of O.C.G.A. § 48-7-1(11), as it applies to certain nonresidents rece iving income in the form of deferred compensation or income from the exercise of stock options.
(2) Definitions.
(a)
Taxable Nonresident. The term "taxable nonresident" means the same as defined in O.C.G.A. §
48-7-1(11).
(b)
Incentive Stock Options. The term "incentive stock options" means those stock options provided by Section 422 of the Internal Revenue Code.
(c)
Employee Stock Purchase Plan Options. The term "employee stock purchase plan options" means those stock options provided by Section 423 of the Internal Revenue Code.
(d)
Nonstatutory Stock Options. The term "nonstatutory stock options" means those stock options that do not meet the requirements of, and are not governed by the rules of, Sections 421 through 424 of the Internal Revenue Code.
(e)
Deferred Compensation. The term "deferred compensation" means deferred compensation received from a nonqualified deferred compensation plan.
(f)
Nonqualified deferred compensation plan. The term "nonqualified deferred compensation plan" means the same as it is defined in Internal Revenue Code Section 3121(v)(2).
(3) Taxability.
(a)
Deferred Compensation. The deferred income received by a nonresident of Georgia, who regularly engaged in employment, trade, business, professional or other activity for financial gain or profit in a prior year within Georgia and whose deferred income exceeds the lesser of 5% of the income received from all places during the taxable year or $5,000, shall be subject to taxation in Georgia as provided in O.C.G.A. §
48-7-30. All examples in this subparagraph assume the taxpayer meets the threshold provided in this subparagraph.
1. The income earned while the taxpayer was a resident, part-year resident, or nonresident shall be allocated based on the ratio of the days worked in Georgia for the employer on or after January 1, 2011 to the total days worked for the employer.
(i) Example 1. Individual A, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. Individual A was a resident of Georgia for all of 2011, worked 250 days in Georgia for the employer during 2011 and worked a total of 250 days for the employer during all of 2011. 100% (250/250) of the deferred compensation received is included in Georgia taxable income in 2012.
(ii) Example 2. Individual B, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. Individual B was a resident of Georgia for all of 2011, worked 200 days in Georgia for the employer during 2011 and worked a total of 250 days for the employer during all of 2011. 80% (200/250) of the deferred compensation received is included in Georgia taxable income in 2012.
(iii) Example 3. Individual C, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. During 2011 Individual C was a nonresident of Georgia, worked 50 days in Georgia for the employer during 2011, and worked a total of 250 days for the employer during all of 2011. 20% (50/250) of the deferred compensation received is included in Georgia taxable income in 2012.
(iv) Example 4. Individual D, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2010 and 2011. During 2010 and 2011 Individual D was a nonresident of Georgia, worked 50 days in Georgia for the employer during 2011, and worked a total of 500 days for the employer during all of 2010 and 2011. 10% (50/500) of the deferred compensation received is included in Georgia taxable income in 2012. The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 50 days worked in Georgia during 2011 are included in the numerator.
2. With respect to nonqualified deferred compensation plans governed by Internal Revenue Code Section 3121(v)(2), the amount of income earned for employment in a particular year shall be the amount determined pursuant to Internal Revenue Code Section 3121(v)(2) except that when Internal Revenue Service Regulation 31.3121(v)(2)-1(e)(4) applies, the employer must determine the amount of income for such particular year using some other reasonable method.
(b)
Stock Options. The income from the exercise of stock options received by a nonresident of Georgia, who engaged in employment, trade, business, professional, or other activity for financial gain or profit in a prior year within Georgia and whose income exceeds the lesser of five percent (5%) of the income received from all places during the taxable year or $5,000, shall be subject to taxation in Georgia as provided in O.C.G.A. §
48-7-30. All examples in this subparagraph assume the taxpayer meets the threshold provided in this subparagraph.
1.
Incentive Stock Option. If the option is an incentive stock option (income is recognized when the stock is sold) then the amount that is included in Georg ia taxable income is computed using the following formula:
(i) (During the time from the grant date to the vest date the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the time from the grant date to the vest date) x (fair market value of the stock on the exercise date less the amount paid when the stock was exercised). The amount that is included in Georgia taxable income is not changed if the fair market value at the time of the sale is higher or lower than the fair market value on the exercise date.
(ii) Example 5. Individual E, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $25 per share. Individual E vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual E sold the stock on December 31, 2013 for $50 per share. Individual E was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual E was a nonresident during the period January 1, 2012 until June 30, 2012. Individual E worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual E must include the following in Georgia taxable income in the 2013 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((125+25) / 250)) 60%
Income to be included in Georgia taxable income $ 6,000
(iii) Example 6. Individual F, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2011 which are exercisable on June 30, 2013 at a price of $25 per share. Individual F vested on June 30, 2012 and exercised the options on June 30, 2013. The fair market value on June 30, 2013 was $35 per share. Individual F sold the stock on December 31, 2013 for $50 per share. Individual F was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual F was a nonresident during the period January 1, 2012 until June 30, 2012. Individual F worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual F must include the following in Georgia taxable income in the 2013 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((75+25) / 250)) 40%
Income to be included in Georgia taxable income $ 4,000
(iv) Example 7. Individual G, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2010 which are exercisable on June 30, 2012 at a price of $25 per share. Individual G vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual G sold the stock on December 31, 2013 for $50 per share. Individual G was a resident of Georgia during the period July 1, 2010 until December 31, 2011, had 75 work days in Georgia for the employer during 2011, and had 375 total work days for the employer during this period. Individual G was a nonresident during the period January 1, 2012 until June 30, 2012. Individual G worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual G must include the following in Georgia taxable income in the 2013 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((75+25) / 500))* 20%
Income to be included in Georgia taxable income $ 2,000
*The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 75 days worked in Georgia during 2011 and the 25 days worked in Georgia during 2012 are included in the numerator.
2.
Employee stock purchase plan options. If the option is an employee stock purchase plan option (income is recognized when the stock is sold) then the amount that is included in Georgia taxable income is computed using the following formula:
(i) (For the taxable year the option was granted the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the taxable year the option was granted) x (ordinary income recognized pursuant to the Internal Revenue Code).
(ii) Example 8. Individual H, currently a resident of another state, was granted 1000 employee stock purchase plan options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $34 per share. Individual H exercises the options on this date and sells the stock on July 1, 2013 for $45 per share. The fair market value on July 1, 2011 was $40 per share. Individual H was a resident of Georgia during the period January 1, 2011 until June 30, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual H was a nonresident during the period July 1, 2011 until December 31, 2011. Individual H worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual H must include the following in Georgia taxable income in the 2013 tax year:
Ordinary income recognized pursuant to the
Internal Revenue Code ($40 - $34=$6 x 1000) $ 6,000
Ratio of Georgia days
((75+25) / 250)) 40%
Income to be included in Georgia taxable income $ 2,400
(iii) Example 9. Individual I, currently a resident of another state, was granted 1000 employee stock purchase plan options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $34 per share. Individual I exercises the options on this date and sells the stock on July 1, 2013 for $35 per share. The fair market value on July 1, 2011 was $40 per share. Individual I was a resident of Georgia during the period January 1, 2011 until June 30, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual I was a nonresident during the period July 1, 2011 until December 31, 2011. Individual I worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual I must include the following in Georgia taxable income in the 2013 tax year:
Ordinary income recognized pursuant to the
Internal Revenue Code ($35 - $34=$1 x 1000) $ 1,000
Ratio of Georgia days
((125+25) / 250)) 60%
Income to be included in Georgia taxable income $ 600
3.
Nonstatutory stock option that does not have a readily ascertainable fair market value. If the option is a nonstatutory stock option that does not have a readily ascertainable fair market value (income is recognized on the exercise date) then the amount that is included in Georgia taxable income is computed by the following formula:
(i) (During the time from the grant date to the vest date the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the time from the grant date to the vest date) x (fair market value of the stock on the exercise date less the amount paid when the stock was exercised).
(ii) Example 10. Individual J, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2011 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2012 at a price of $25 per share. Individual J vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual J was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual J was a nonresident during the period January 1, 2012 until June 30, 2012. Individual J worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual J must include the following in Georgia taxable income in the 2012 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((125+25) / 250)) 60%
Income to be included in Georgia taxable income $ 6,000
(iii) Example 11. Individual K, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2011 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2012 at a price of $25 per share. Individual K vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual K was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual K was a nonresident during the period January 1, 2012 until June 30, 2012. Individual K worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual K must include the following in Georgia taxable income in the 2012 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((75+25) / 250)) 40%
Income to be included in Georgia taxable income $ 4,000
(iv) Example 12. Individual L, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2010 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2013 at a price of $25 per share. Individual L vested on June 30, 2012 and exercised the options on June 30, 2013. The fair market value on June 30, 2013 was $35 per share. Individual L was a resident of Georgia during the period July 1, 2010 until December 31, 2011, had 75 work days in Georgia for the employer during 2011, and had 375 total work days for the employer during this period. Individual L was a nonresident during the period January 1, 2012 until June 30, 2012. Individual L worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual L must include the following in Georgia taxable income in the 2013 tax year:
Difference between the fair market value on exercise date and the amount paid on exercise
(($35 less $25) x 1000 shares) $10,000
Ratio of Georgia days from grant to vest
((75+25) / 500))* 20%
Income to be included in Georgia taxable income $ 2,000
*The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 75 days worked in Georgia during 2011 and the 25 days worked in Georgia during 2012 are included in the numerator.
4.
Nonstatutory stock option that has a readily ascertainable fair market value. If the option is a nonstatutory stock option that has a readily ascertainable fair market value (income is recognized in the year the option is granted), then the amount that is included in Georgia taxable income is computed by the following formula:
(i) (For the taxable year the option was granted the number of days worked in Georgia for the employer while a resident, part-year resident, or nonresident / total number of work days for the employer during the taxable year the option was granted) x (ordinary income recognized pursuant to the Internal Revenue Code).
(ii) Example 13. Individual M, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2012 that have a readily ascertainable fair market value. The fair market value of the options on July 1, 2012 was $35 per share. Individual M was a resident of Georgia during the period January 1, 2012 until June 30, 2012, had 125 work days for the employer in Georgia during this period, and had 125 total work days for the employer during this period. Individual M was a nonresident during the period July 1, 2012 until December 31, 2012. Individual M worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual M must include the following in Georgia taxable income in the 2012 tax year:
Ordinary income recognized pursuant to the Internal Revenue Code ($35 x 1000 shares) $35,000
Ratio of Georgia days
((125+25) / 250)) 60%
Income to be included in Georgia taxable income $21,000
(iii) Example 14. Individual N, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2012 that have a readily ascertainable fair market value. The fair market value of the options on July 1, 2012 was $35 per share. Individual N was a resident of Georgia during the period January 1, 2012 until June 30, 2012, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual N was a nonresident during the period July 1, 2012 until December 31, 2012. Individual N worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual N must include the following in Georgia taxable income in the 2012 tax year:
Ordinary income recognized pursuant to the Internal Revenue Code ($35 x 1000 shares) $35,000
Ratio of Georgia days
((75+25) / 250)) 40%
Income to be included in Georgia taxable income $14,000
(4) Withholding. The employer shall withhold Georgia income tax as provided in Article 5 of Chapter 7 of Title 48 on all deferred compensation and stock options which are required to be included in Georgia taxable income.
(5) Withholding documentation. For purposes of determining the number of days worked in Georgia and the total days worked in a year, the employer shall use records that are available to them. However, if the records are not available, the employer may reasonably rely upon a written representation, signed under penalties of perjury, from the employee of the number of days. The employer will only be held liable if the employer had actual or constructive knowledge that the employee's written representation was false or contained erroneous information. Further, the employer may elect to determine the number of days worked in Georgia by assuming the employee worked in Georgia only during the time the employee was a resident of Georgia.
(6) Effective Date. The provisions of this rule shall be effective for taxable years beginning on or after January 1, 2011.
O.C.G.A. Secs. 48-2-12, 48-7-1, 48-7-30. 92-3005, 92-3006, 92-8405, 92-8406, 94-8427.
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