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Yesterday I got an email from my employer about 409A. Reading the information from them, I get the impression there was a retroactive 20% tax, and since it was a tax, there was nothing anyone could have possibly done to avoid it. Their justification for making me pay it is: You are responsible for meeting your own personal income tax obligations even when tax laws change.

After reading the information from them, I was thinking that was a lousy retroactive tax increase.

But when I read stuff online, I am getting an entirely different impression. Articles I find online refer to it as a 20% penalty for not reporting the NSO option as deferred income. Basically they screwed up and didn't report everything properly on my W-2.

I think the question may be was the NSO option violation of 409A, or was the violation a misreporting of income?

If its a tax increase, clearly I owe it. If its a penalty for them not correctly reporting my income, that seems like its more their issue.

I don't know specifics on how much the penalty is. But it sounds like I will have to refile my 2006 taxes, and probably pay another 2k-4k depending on how much of my options were affected.

Can anyone explain this?

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