Accounting for Tax Benefits of Employee Stock Options and Implications for Research

2002 ◽  
Vol 16 (1) ◽  
pp. 1-16 ◽  
Author(s):  
Michelle Hanlon ◽  
Terry Shevlin
Keyword(s):  
Income Tax ◽  
Stock Options ◽  
Employee Stock Options ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Marginal Tax Rates ◽  
Tax Benefits ◽  
The Impact ◽  
Tax Expense ◽  
Reported Income

This paper examines how firms account for and report the tax benefits of employee stock options (ESOs). The tax benefits of ESOs reduce taxes actually owed but enter stockholders' equity directly without reducing reported income tax expense. Failing to adjust reported income tax expense for this benefit can lead to poorly specified studies with the distinct possibility of considerable measurement error and flawed inferences. We explain the adjustments needed for more reliable estimates of effective tax rates, tax burdens, and marginal tax rates often critical to analyses of firm-specific and public policy issues. We document problems with firms' disclosures and, using a sample of large NASDAQ firms likely to be heavy users of ESOs, find that adjusting for the ESO tax benefit is essential to understanding the impact of taxes on those firms.

The Impact of Tax Status on the Relation between Employee Stock Options and Debt

2008 ◽  
Vol 30 (1) ◽  
pp. 55-75 ◽  
Author(s):  
Jagadison K. Aier ◽  
Jared A. Moore
Keyword(s):  
Stock Options ◽  
Employee Stock Options ◽  
Tax Rates ◽  
Tobit Regression ◽  
Tax Shields ◽  
Marginal Tax Rates ◽  
Tax Status ◽  
High Level ◽  
The Impact ◽  
Debt Policy

ABSTRACT: This study extends prior research on the tax-motivated substitution of employee stock options (ESOs) for debt by providing evidence on the manner in which the tax status of the firm and ESOs interact to influence debt policy. Using tobit regression and a sample of 13,345 firm-year observations over the period 1993–2004, we find that firms whose expected marginal tax rates are likely to be affected by non-debt tax shields (i.e., tax-sensitive firms) substitute ESOs for debt. In contrast, we find no association between debt and ESOs for firms that are likely able to fully utilize all available tax shields without affecting their expected marginal tax rates due to their high level of profitability for tax purposes (i.e., tax-insatiable firms). These results suggest that tax status impacts the association between debt and ESOs such that the two tax shields are not substitutes for all groups of firms across tax status categories.

scholarly journals THE IMPACT OF TAX POLICY ON ECONOMIC GROWTH, INCOME DISTRIBUTION, AND ALLOCATION OF TAXES

2006 ◽  
Vol 23 (2) ◽  
pp. 28-52 ◽  
Author(s):  
James D. Gwartney ◽  
Robert A. Lawson
Keyword(s):  
Economic Growth ◽  
Income Distribution ◽  
Income Tax ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Income Groups ◽  
Marginal Tax Rates ◽  
Tax Changes ◽  
The Impact ◽  
Distribution Of Income

Using a sample of seventy-seven countries, this paper focuses on marginal tax rates and the income thresholds at which they apply to examine how the tax changes of the 1980s and 1990s have influenced economic growth, the distribution of income, and the share of taxes paid by various income groups. Many countries substantially reduced their highest marginal rates during the 1985-1995 period. The findings indicate that countries that reduced their highest marginal rates grew more rapidly than those that maintained high marginal rates. At the same time, the income distribution in several of the tax cutting countries became more unequal while there was little change or even a reduction in income inequality in most countries that maintained high marginal rates. Finally, the evidence suggests that there was a shift in the payment of the personal income tax away from those with low and middle incomes and toward those with the highest incomes.

scholarly journals The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era

2014 ◽  
Vol 6 (3) ◽  
pp. 242-281 ◽  
Author(s):  
Christina D. Romer ◽  
David H. Romer
Keyword(s):  
Time Series ◽  
Income Tax ◽  
Positive Impact ◽  
Tax Rates ◽  
Marginal Rate ◽  
Taxable Income ◽  
Incentive Effects ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Section Analysis

This paper uses the interwar United States as a laboratory for investigating the incentive effects of marginal income tax rates. We examine the impact of the large changes in rates in this period on taxable income using time-series/cross-section analysis of data by small slices of the income distribution. We find that the effect operated in the expected direction but was economically small, and that it is precisely estimated and highly robust. We also find suggestive time-series evidence of a positive impact of marginal rate cuts on business formation, but no evidence of an important effect on other indicators of investment. (JEL D31, H24, H31, M13, N42)

The Effects Of Changes In Federal Income And Social Security Taxes On Farmers

1992 ◽  
Vol 24 (1) ◽  
pp. 261-269
Author(s):  
Michael Compson ◽  
Ron Durst
Keyword(s):  
Social Security ◽  
Income Tax ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Payroll Tax ◽  
Self Employment ◽  
The Social ◽  
Federal Income Tax ◽  
Tax Payments ◽  
The Impact

AbstractThis paper examines the impact of the Tax Reform Act of 1986 and the Social Security Amendments of 1983 on effective tax rates and average tax payments for farmers. The 1987 and 1988 Internal Revenue Service Individual Public Use Tax Files were used to estimate 1987 and 1990 tax rates and burdens. Results suggest that despite recent reductions in marginal income tax rates, the Federal income tax continues to be progressive. However, the regressive nature of the social security and self-employment tax greatly reduces the progressivity of the combined Federal income and payroll tax burden. For most farmers, combined social security and self-employment tax payments exceed Federal income tax liability.

scholarly journals The Effect of the Tax Cuts and Jobs Act on the Choice between Traditional and Roth IRAs

2020 ◽  
Vol 27 (2) ◽  
pp. 30
Author(s):  
Brian Nichols ◽  
Chioma Nwogu
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Rates Of Return ◽  
Tax Rate ◽  
Tax Benefits ◽  
Roth Ira ◽  
Tax Savings ◽  
Jobs Act ◽  
The Impact ◽  
Tax Cuts

This paper analyzes the impact of the tax cuts and jobs act on the income taxeffectiveness of the Roth IRA versus the traditional IRA for investors who maximizetheir contributions prior to retirement. Since the tax cuts and jobs act reduced marginalincome tax rates, the tax benefits gained from a traditional IRA decrease compared toa Roth IRA. Based on set investment parameters, an investor makes monthly paymentsto the IRAs for a specific period and the tax savings obtained from the traditional IRAare reinvested into a separate taxable account. The after-tax accumulation of wealth ineach account is calculated to determine which IRA produces the largest available aftertax withdrawals after retirement. A break-even analysis is also constructed to determinethe marginal income tax rate and investment return that makes an investor indifferentbetween the two IRAs. The results illustrate that the decision to invest in a traditionalIRA versus a Roth IRA depends on both the rates of return and whether the marginalincome tax rate is the same or different during the contribution and withdrawal periods.

scholarly journals Tax aggressiveness: The evidence from Polish listed companies

2017 ◽  
Vol 14 (3) ◽  
pp. 20-24 ◽  
Author(s):  
Alicja Brodzka ◽  
Krzysztof Biernacki ◽  
Magdalena Chodorek
Keyword(s):  
Income Tax ◽  
Raw Materials ◽  
Stock Exchange ◽  
Listed Companies ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Tax Aggressiveness ◽  
Sectoral Differences ◽  
Warsaw Stock Exchange ◽  
The Impact

The purpose of the article is analyzing the impact of taxation on the effective income tax rates paid by Polish companies. The authors present the results of a study made on the biggest firms, listed on the Warsaw Stock Exchange and included in the WIG20 index. In the research they bring closer the concept of tax aggressiveness – by looking at the effective tax rates (ETRs) achieved by WIG20 companies in years 2010-2014. The study is structured into 5 groups, according to the industry in which the analyzed companies operate. The results prove the sectoral differences in the level of ETRs. While the financial enterprises pay relatively high taxes in relation to the achieved gross profit, the energy sector has a negligible rate of effective taxation. At the same time companies operating in fuel and raw materials industry achieve highly unstable effective tax rates.

scholarly journals Determinants of effective Tax Rate of the top 45 Largest listed companies of Indonesia

2017 ◽  
Vol 9 (3) ◽  
pp. 1183-1188 ◽  
Author(s):  
Dr. Andreas ◽  
Enni Savitri
Keyword(s):  
Income Tax ◽  
Capital Intensity ◽  
Listed Companies ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Independent Variables ◽  
Tax Expense

The capital inflows and outflows of a country are closely related to the established tax rate policy. Tax rate is one of important factors in investment decisions. Evidence that there are variations in effective tax rates amongs firms draw attention of researchers to understand the impact of tax policies on corporate tax burdens (Gupta and Newberry, 1997; Molloy, 1998). Effective tax rate is a dependent variable that is commonly used as a proxy to measure corporate tax burden. This study examined corporate effective tax rates (ETRs) of the top 45 largest listed companies of Indonesia within 2009-2014 (after tax reform of 2008, to be exact). We used two types of ETR1 and ETR2 measures as dependent variables. The first type is the ratio of current income tax expense divided by income before interest and taxes and the second type is the ratio of total income tax expense (current tax expense plus deferred tax expense) divided by income before interest and taxes (Noor et al. 2008).We also used some of independent variables related to firms’characteristics, such as firm size, capital intensity, leverage, returns on assets, and inventory intensity. The statistical results reveal that all independent variables contributed to ETR1 and ETR2 except the capital intensity is not contributed to ETR2. However, the findings provide support for the tax policy on corporate actual tax burdens.

scholarly journals Income Statement Reporting Discretion Allowed by FIN 48: Interest and Penalty Expense Classification

2017 ◽  
Vol 39 (1) ◽  
pp. 45-66 ◽  
Author(s):  
John L. Abernathy ◽  
Brooke Beyer ◽  
Andrew D. Gross ◽  
Eric T. Rapley
Keyword(s):  
Forecast Accuracy ◽  
Tax Avoidance ◽  
Financial Accounting ◽  
Tax Rates ◽  
Financial Accounting Standards Board ◽  
Effective Tax Rates ◽  
Fin 48 ◽  
Income Statement ◽  
Tax Benefits ◽  
Tax Expense

ABSTRACT Financial Accounting Standards Board Interpretation No. 48 (FIN 48, FASB 2006) allows discretion regarding the income statement classification of interest and penalty expenses for unrecognized tax benefits (UTBs). We investigate whether tax avoidance, management compensation, and debt agreements affect the expense classification election and whether this discretion has implications for financial statement users. We find firms that engage in tax avoidance activities, measured by effective tax rates (ETRs) and involvement in tax disputes, are more likely to include interest and penalties in tax expense. We also find that interest and penalties are more likely to be classified as tax expense when CEO compensation is more sensitive to pre-tax income. Finally, we find that UTB interest and penalty expense classification is associated with analysts' ETR forecast accuracy, which suggests there is a potential unintended consequence related to decision usefulness of FIN 48 reporting due to expense classification discretion.

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