CPM Executive Compensation & Equity Plans 2

Question 1

Under a qualified Employee Stock Purchase Plan (ESPP) that meets Section 423 requirements, the maximum discount that may be offered to employees is:

Accepted Answer

15%

Answer

Section 423 ESPPs may offer up to a 15% discount from the lower of the stock price at the beginning or end of the offering period.

Question 2

When RSUs vest and shares are delivered to the employee, the employer is required to withhold:

Accepted Answer

Federal income tax, Social Security, and Medicare taxes

Answer

RSU vesting triggers ordinary compensation income subject to mandatory federal income tax withholding plus Social Security and Medicare (FICA) taxes.

Question 3

The 'sell-to-cover' method for RSU tax withholding means that:

Accepted Answer

A portion of the vesting shares is automatically sold to generate proceeds equal to the required withholding taxes

Answer

Under sell-to-cover, the company sells enough newly vested shares on the employee's behalf to fund the withholding tax obligation, with net shares delivered to the employee.

Question 4

For NQSO exercises paid as supplemental wages (separately from regular wages), the mandatory flat federal income tax withholding rate is:

Accepted Answer

22%

Answer

The mandatory flat supplemental withholding rate is 22% for supplemental wages up to $1 million in a calendar year, including NQSO spread income.

Question 5

To receive preferential long-term capital gains treatment on ISO shares, an employee must satisfy which holding periods?

Accepted Answer

Hold at least 1 year from the exercise date AND at least 2 years from the original grant date

Answer

Both conditions must be satisfied: shares held at least 1 year from exercise AND at least 2 years from grant date; failing either requirement results in a disqualifying disposition.

(CPM) Certified Payroll Manager Practice Test

(CPM) Certified Payroll Manager Practice Test

CPM Executive Compensation & Equity Plans 2