Tax returns for Employment-Share Schemes

Tax rules covering income from shares schemes, shares options and dividends can be complex and quite daunting for employees.

In some cases, the employee is obliged to account for the tax liabilities – in other cases, the employer is obliged to account for tax liabilities. Whether or not you are liable to pay tax on this income depends on the type of share scheme your employer operates.

Our experts have gathered some information in order to help you understand some of the more common employment-related shares schemes and how they affect your tax liability.

A Share Option is the right to acquire shares in the company at a pre-determined price. When the share option is exercised, any tax due is payable to the Revenue Commissioners within 30 days of exercising the option for which the employee must return Form RTSO1 along with payment.

You may also be subject to Capital Gains Tax (CGT) in addition to the Relevant Tax on Share Option (RTSO) if you do not sell the shares immediately.

A Restricted Stock Unit (RSU) is a grant of shares in the company to you by your employer. On completion of the vesting period – the agreed period of time you must be employed in the company in order to own these shares – you will receive shares in the company or the cash equivalent. Income tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) is payable on these type of shares and is processed via the PAYE system by your employer.

CGT may be liable if you decide to sell your RSU. However, it is up to the employee to declare this to the Revenue Commissioners and pay any CGT that may be due.

This approved savings related share option scheme works by offering employees the option to buy shares at a discounted rate using savings the employee has accumulated.

Employees who exercise their option to buy shares at the end of the savings period will not be liable to pay Income Tax on any gain made from these shares. However, you must still pay USC and PRSI. CGT may be liable if you decide to sell the shares you received through the SAYE scheme.

Under this scheme, your employer can award you up to a maximum limit of €12,700 in tax-free shares per year. In order for this income to be exempt from Income Tax, the shares must be held in a trust for the period of retention set up by your employer.

Although you are not liable for Income Tax under this scheme, you must pay USC and PRSI on the value of the shares.

The term “dividend” refers to the portion of a company’s profits that is paid to individuals who hold shares in that company.

Irish Resident companies pay Dividend Withholding Tax (DWT) at the source, meaning before it is distributed to you as a shareholder – DWT is currently levied at 20%. However, any dividends received must still be declared to the Revenue Commissioners in your income tax return.

Still have more questions about paying tax on employment-related shares? Check out this blog post to learn more.