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Section 409A generally applies to a stock appreciation right (SAR) unless (1) the SAR only provides appreciation as of the date of exercise in excess of the fair market value (determined as of the date of grant, under the rules discussed above) of a fixed number of shares of the eligible issuers stock; and (2) the
SARs are taxed the same way as non-qualified stock options (NSOs). There are no tax consequences of any kind on either the grant date or when they are vested. However, participants must recognize ordinary income on the spread at the time of exercise. 2 Most employers will also withhold supplemental federal income tax.
SARs are granted at a set price. After vesting, employees can exercise/receive the award without having to pay for it before expiration. Options are granted at a set price. After vesting, employees have the right to exercise the award at the set price before the expiration.
Unlike stock options, SARs are often paid in cash and do not require the employee to own any asset or contract. SARs are beneficial to employers since they do not have to dilute share price by issuing additional shares.
What Are the Advantages of Stock Appreciation Rights? One of the benefits of SARs is that there is no money required to exercise them for cash. An employee automatically receives the proceeds from an exercise without having to pay for the cost of the shares.

People also ask

Stock appreciation rights (SARs) are a type of equity compensation that ties to your companys stock price to motivate and retain employees. It provides the holder with the ability to profit from the appreciation in the value of the awards.
Employees can only exercise the stock appreciation rights after the shares have vested. The vesting period is the minimum period employees must hold the stocks before they can exercise the stock appreciation rights. Generally, employers offer stock appreciation rights along with stock options.
Stock appreciation rights are treated as taxable income when you exercise them. If you receive shares of stock instead of cash, and then decide to sell those shares, you may owe capital gains tax on the appreciated value.
There are no U.S. federal income tax consequences when an employee is granted SARs. However, at exercise an employee will recognize compensation income on the fair market value of the amount received at vesting. An employer is generally obligated to withhold taxes.
Stock Appreciation Rights are similar to Stock Options in that they are granted at a set price, and they generally have a vesting period and an expiration date. Once a SAR vests, an employee can exercise it at any time prior to its expiration.

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