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Paying Employees In Stock

Today at work we had a client ask what happens where they have a worker, who instead of being paid a cash salary is paid in stock? The client was having issue with the topic because the employer was not receiving any money they could spend, but yet the employee seemed to need to pay income tax on the stock they received. The Internal Revenue Code Section 61 describes income as anything from all sources no matter if it is stock, cash, or a car. https://www.law.cornell.edu/uscode/text/26/61


This seemed to make sense to the client and the next step for them was understanding how the journal entries worked and why. Breaking this into 2 steps seemed to explain it best. First the employee worked for a wage. On the business books, Employee Expense was debited and Cash was credited. Next the employee traded the cash for stock, so on the business books Cash was debited and Stock was credited.


#stockoption #payingstock

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