The following is not meant to be legal advice.
The Internal Revenue Service (IRS) announced a voluntary correction program that employers can use to correct underwithholding of taxes incurred from the exercise in 2006 of "backdated options." The deadline for entering this voluntary compliance program is
The employer may pay the underwithheld federal taxes and the additional tax payments on behalf of the employees affected. If the employer completes the program, the employee and employer are relieved of any penalties the IRS might impose for underwithholding of gross up taxes.
Participation in the program does not reduce the amount of any tax owed. The employer must pay all the taxes and interest due by
If the W-2 issued to the employee did not reflect the effect of gross up taxes, the employer will not need to issue a corrected W-2.
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