EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES.

SEC. 251. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN STOCK OPTIONS FROM WAGES. (a) Exclusion From Employment Taxes.—(1) Social security taxes.—(A) Section 3121(a) (relating to definition of wages) is amended by striking “or” at the end of paragraph (20), by striking the period at the end of paragraph (21) and inserting “; or”, and by inserting after paragraph (21) the following new paragraph:“(22) remuneration on account of—“(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or“(B) any disposition by the individual of such stock.”.(B) Section 209(a) of the Social Security Act is amended by striking “or” at the end of paragraph (17), by striking the period at the end of paragraph (18) and inserting “; or”, and by inserting after paragraph (18) the following new paragraph:“(19) Remuneration on account of—“(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b) of the Internal Revenue Code of 1986) or under an employee stock purchase plan (as defined in section 423(b) of such Code), or“(B) any disposition by the individual of such stock.”.(2) Railroad retirement taxes.—Subsection (e) of section 3231 is amended by adding at the end the following new paragraph:“(12) Qualified stock options.—The term ‘compensation’ shall not include any remuneration on account of—“(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or“(B) any disposition by the individual of such stock.”.(3) Unemployment taxes.—Section 3306(b) (relating to definition of wages) is amended by striking “or” at the end of paragraph (17), by striking the period at the end of paragraph (18) and inserting “; or”, and by inserting after paragraph (18) the following new paragraph:“(19) remuneration on account of—“(A) a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b)) or under an employee stock purchase plan (as defined in section 423(b)), or“(B) any disposition by the individual of such stock.”.(b) Wage Withholding Not Required on Disqualifying Dispositions.—Section 421(b) (relating to effect of disqualifying dispositions) is amended by adding at the end the following new sentence: “No amount shall be required to be deducted and withheld 118 STAT. 1459 under chapter 24 with respect to any increase in income attributable to a disposition described in the preceding sentence.”.(c) Wage Withholding Not Required on Compensation Where Option Price Is Between 85 Percent and 100 Percent of Value of Stock.—Section 423(c) (relating to special rule where option price is between 85 percent and 100 percent of value of stock) is amended by adding at the end the following new sentence: “No amount shall be required to be deducted and withheld under chapter 24 with respect to any amount treated as compensation under this subsection.”.(d) Effective Date.—The amendments made by this section shall apply to stock acquired pursuant to options exercised after the date of the enactment of this Act.