My husband got taxed almost 50% for payroll tax on a stock option withdraw, is this right?

Took the stock option. The company taxed him $1600 on $3400 would be profit from exercising the stock option. We knew that they had to tax the money as income, but why so much? Is this right? His normal payroll deductions on salary is about 20% of the total.

Stock options can be a very complicated issue. Any answer you get from the information that you have provided is very ill informed. Without knowing a great deal more than you would be able to provide in this forum we would only be guessing. I would suggest that you take the documents to a tax professional and ask them to explain what is happening. One possibility is that the $1600 is not the withholding but rather the "Taxable" portion of the Option. But that is nothing more than a guess at this point.

Talk to your plan administrator. They should be able to give you a breakdown. If you had a gain of $3400, though, $1600 sounds about right... Report It

On his $3,400 theres a 20% penalty for the withdrawal and a 28% for your husbands income. You may want to check on that however because the 20% seems high to me, it should be 10% and 20% for a total of 30% but I'm assuming this is tied in to your husbands retirement plan is that right? If so each plan is different depending on circumstances. If it's not there is definitely something wrong. Do you owe the IRS now?

If you are iffy as to why your husband was taxed so high you should go to the IRS.gov website and run a key word search for stock options.

I am not sure under what circumstances the stock option was exercise (if it was early or whether he waited until it matured), but under most circumstances you are taxed at the highest rate because the option profits are not considered ordinary income.

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