US President George W. Bush is expected to sign into law by next week a bill that will give relief to employees who were taxed on “phantom” share options gains they never received.

The enactment of the legislation will allow refunds to be claimed from January by employees at companies such as Cisco and Intel that paid tax on the paper value of share options that later lost much of their value.

The legislation will give relief to many of the employees hit hardest when the technology bubble burst.

The bill reforms a tax on incentive on stock options that was designed to encourage long-term share ownership by employees, but exposed them to huge financial risk by taxing the theoretical gains they made when the stock was purchased, not when it was sold.

Staff of those companies could have avoided disproportionate tax liabilities by selling their shares shortly after they exercised their options, but many did not get suitable financial advice and held onto the stock even as the shares declined.

Jay Cena, who worked for Network Appliance in California in the late 1990s, said the financial advice available to first-time shareholders was inadequate because of overwhelming demand.

“We were all working 12 hour days, we didn’t have time to read the fine print. My parents couldn’t advise me – they were blue collar and live in New Jersey. We had no experience of share ownership,” he said.

“I was on medical leave undergoing chemotherapy treatment when I got a call from my account saying you have a big tax bill,” he added.

Mr Cena was left owing more than $2.1m in tax on stock options once worth $3m, even though the shares had plunged.

The former tech worker joined others in a long campaign for relief that was taken up by Congressman Richard Neal, who represents a Massachusetts district with many EMC employees, and Congressman Sam Johnson, who represents a district with large numbers of staff from Texas Instruments.

The enactment of the bill – which was passed by Congress over the weekend - means those hit by the tax can expect to receive a cheque from the government in about a year’s time if they claim before April.

But lobbyists said it was unclear how the Internal Revenue Service would treat those who faced penalties for earlier non-payment of the tax.

Get alerts on Texas Instruments Inc when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article