Stock Options

A stock option is the right to purchase shares at a fixed price. For example, it is the right to buy Toss shares at 200 won.

Exercising a stock option means purchasing shares at a pre-agreed price. Exercising a Toss stock option at 200 won means buying Toss shares at 200 won.

A stock option can be exercised regardless of the current share price. Whether Toss shares are at 50,000 won, 100,000 won, or 1,000 won, exercising the option lets you buy them at 200 won.

Stock Options and Employment Income

Suppose Toss shares are at 50,000 won and I exercise my option to buy them at 200 won. I would gain 49,800 won for every share I purchase.

In this way, the income generated by a stock option is considered to equal the difference between the current price of the stock (“market price”) and the price at which the option is exercised (“exercise price”).

The more shares you buy at a low price, the more income is generated. For example, if a gain of 49,800 won arises per share, exercising stock options for 1,000 shares generates 49,800,000 won in income.

Stock options are generally exercised while still employed at the company, and options exercised during employment are treated as employment income. In other words, income from stock options is treated exactly the same as salary or bonuses.

Costs Incurred

• Income Tax
  • Because the gain from exercising stock options is treated as additional salary or bonus income, income tax is levied accordingly.
  • If an employee’s annual salary is 100,000,000 won, each additional 10,000,000 won of stock option income generates approximately 3,800,000 won in income tax at a tax rate of 38%.
    • An additional local income tax of 10% of the income tax also applies. If income tax is 3,800,000 won, the local income tax would be 380,000 won.
  • For detailed tax rates, refer to the employment income tax rates.
  • However, as of 2023, up to 200,000,000 won per year of income from exercising stock options is exempt from tax. Therefore, income tax is 0 won as long as the income from exercising stock options does not exceed 200,000,000 won in a year.
  • Taxes arising from exercising stock options can be paid in installments over 5 years.
• National Health Insurance Premium
  • As of 2023, employees are required to personally contribute 3.545% of their total income as health insurance premiums.
  • For every 10,000,000 won of income generated from stock options, approximately 354,500 won in health insurance premiums must be paid.
  • Unlike income tax, there is no tax exemption benefit for additional health insurance premiums.
  • Additional health insurance premiums resulting from stock options are typically paid during the year-end health insurance adjustment, and if the amount is excessive, they can be paid in installments of up to 10 months.
• Employment Insurance Premium
  • As of 2023, employees are required to personally contribute 0.9% of their total income as employment insurance premiums.
  • For every 10,000,000 won of income generated from stock options, 90,000 won in employment insurance premiums must be paid.
  • Employment insurance premiums also have no tax exemption benefit.