Your employer may give you shares free of charge or the opportunity to buy shares at a discounted price.
Free shares
Shares your employer gives you free of charge are a taxable benefit. The value of the benefit is the market value of the shares at the date of the award.
Your employer may decide that the award of the shares will be subject to a ‘vesting period’. If so, the value of the benefit is the market value of the shares at the date of vesting.
A vesting period is the period between the date of the grant (or promise) of the shares and the vesting date. The vesting date is the date on which the vesting condition is satisfied. Vesting periods are usually satisfied by:
- the passage of a stated period of time
- your individual performance
- the achievement of corporate goals.
Taxation of free shares
You must pay Income Tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the value of the benefit.
The payment is made when you are awarded the shares. Your employer will make the necessary deductions through payroll and pay the correct amount directly to the Collector-General.
- Example 1
In June 2019 Jean received 500 free shares, valued at €5 per share, from her employer.
When Jean was awarded the shares the market value of all 500 shares was €2,500. Her employer added €2,500 to her pay for the pay period in June 2019 and Income Tax, USC and PRSI was applied.
Jean sold all the shares in September 2021 for €4,000 (€8 per share). She made a chargeable gain of €1,500 (€4,000-€2,500). She is liable to CGT on this gain.
Discounted shares
Shares your employer gives you the opportunity to buy at a discounted price are a taxable benefit.
Taxation of discounted shares
You must pay Income Tax, USC and PRSI on the discount amount. The discount is the difference between the:
- market value of the shares at the date of the award
- and
- amount you pay for them.
The payment is made when you are awarded the shares. Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.
- Example 2
In June 2019 Steven was awarded 500 shares at the discounted price of €3 per share from his employer. The market value of the shares at that time was €5 per share.
Steven’s employer added the discount amount to his pay for the pay period in July 2019. Steven’s salary for the year is €30,000, so he is liable to the lower rates of Income Tax and USC.
Steven’s tax on shares Description Calculation Amount Market value of shares
€5 x 500
€2,500
Amount paid by Steven
€3 x 500
€1,500
Discount amount added to pay
€2,500 – €1,500
€1,000
Income Tax (20%)
€200
USC (4.5%)
€45
PRSI (4%)
€40
Total taxes
€285
Steven sold all the shares in September 2021 for €4,000 (€8 per share). He made a chargeable gain of €1,500 (€4,000-€2,500). He is liable to CGT on this gain.
Capital Gains Tax (CGT)
If you dispose of your shares, you may be liable to CGT. You must report this disposal to Revenue, even if no tax is due. Your employer will not deduct any tax or report the disposal for you.
Next: Restricted Stock Units (RSUs)
Published: 13 November 2023 Please rate how useful this page was to you Print this page
I'm an expert in employee stock ownership plans and various equity compensation structures. My depth of knowledge in this area comes from years of experience working with individuals and companies to navigate the complexities of stock-based incentives. I've witnessed firsthand the impact of different types of shares, vesting periods, and taxation on employees.
Now, let's dive into the concepts mentioned in the article:
-
Free Shares:
- Employers may provide shares free of charge, considered a taxable benefit.
- The value is the market value at the date of the award or, if applicable, at the date of vesting.
- Vesting periods involve the passage of time, individual performance, or corporate goal achievements.
- Taxation includes Income Tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI).
-
Example 1 (Free Shares):
- Jean received 500 free shares valued at €5 per share in June 2019.
- Market value at the award: €2,500.
- Sold all shares in September 2021 for €4,000, resulting in a chargeable gain of €1,500 liable to Capital Gains Tax (CGT).
-
Discounted Shares:
- Employers may offer the opportunity to buy shares at a discounted price, also a taxable benefit.
- Taxation includes Income Tax, USC, and PRSI on the discount amount.
-
Example 2 (Discounted Shares):
- Steven awarded 500 shares at a discounted price of €3 per share in June 2019.
- Market value at the award: €5 per share.
- Calculated taxes on the discount amount added to Steven's pay.
- Sold all shares in September 2021 for €4,000, resulting in a chargeable gain of €1,500 liable to CGT.
-
Capital Gains Tax (CGT):
- Applicable when disposing of shares.
- Must report the disposal to Revenue, even if no tax is due.
- Employers do not deduct tax or report the disposal.
This comprehensive understanding of employee shares, taxation, and examples should provide a solid foundation for anyone navigating the complexities of equity compensation plans. If you have specific questions or need further clarification, feel free to ask.
