By Raul Fajardo. Earlier this year, the FASB issued an update to ASC 718 as part of its Simplification Initiative – ASU 2016-09. In part 1 of our blog series, ASC 2016-09: Simple But Complex, we explored the changes to accounting for income taxes and the elimination of the APIC pool. In the second part, we discussed accounting for forfeitures. The third, and final, part of our blog series will focus on minimum statutory tax withholding requirements (to avoid liability accounting treatment).
Under the old rules, if companies chose to withhold shares to pay for taxes, they had to withhold at the minimum statutory rate ONLY, and any excess withholding resulted in liability accounting. Under the amended rules, companies can withhold shares to pay for taxes between the minimum and maximum statutory rates without triggering liability accounting.
The old rules made it more challenging to withhold shares for taxes for individuals in tax jurisdictions where it was difficult to get the exact individual rates. The new rules ease those restrictions and also allow individuals to potentially withhold at a higher than minimum rate.
Companies that couldn’t offer net share withholding to foreign employees before might be able to do so upon adoption. Note though that the amended rules affect only the accounting treatment; companies still have to comply with the tax authorities such the IRS.
Remember, if you choose to move forward with early adoption of the standard all provisions of the update must be adopted at the same time. If you early adopt the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
At Certent, our product enables clients to easily produce the reports they need to comply with ASU 2016-09, and our expert services organization is ready to provide guidance to help make the transition as easy as possible.
If you’re using Excel to manage your equity plan or not getting the support you need from your current vendor, contact us to learn how we can help.
Raul Fajardo is a Customer Support Manager for Certent, Inc. with more than twenty years’ experience in equity compensation. He speaks at various equity compensation conferences on topics such as valuation, accounting, forecasting, tax accounting, and mergers and acquisitions.