Options Trading Tutorial

In which state are my stock options taxable?

I have been living in Illinois for several years. I just exercised some stock options. I got these options in 1997 while living in Maryland. The grantor, my former employer, sent me a check and withheld a bunch of Maryland state taxes. (They had my address screwed up in their computer.) Even though we've now corrected my mailing address, they won't fix the check to switch the withholding to Illinois. They are saying the sale of options are taxable in Maryland because that's where I lived when the options were granted. Is this true or are they just too lazy to fix it?

Public Comments

1. While there are several type of stock options generally the amount of money that the company is putting up for the stock is taxable in the state in which the company is located. Therefore it is very likely that what they have told you is correct. If you hold the stock for any period of time and sell it at a gain, that gain would be taxable in the state of your residences. This event is likely to require that you file a tax return in both states. The good news is that you off set one states taxes with a like deduction for that tax in the other. Options are sometimes very tricky to properly report on your tax return. You may wish to consult with a tax professional in your area. You should attempt to locate some one that is familiar with stock options.