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Tax hits workers' stock-buying plans

Some 92-million American taxpayers will begin receiving tax-cut rebates in the mail this month. But as they await their $41-billion windfall, some may be surprised to learn that a sizable tax increase is headed their way.

The increase involves a new tax levied on workers in employee stock purchase plans. Under these popular plans, employers allow their workers to buy a set amount of their company's shares each year at discounts to current market prices.

The National Center for Employee Ownership estimates that 4,000 companies offered such plans last year, drawing 16-million participants.

For many rank-and-file workers, these plans are the only way to amass assets. Because the companies offering the plans usually allow workers to pay 15 percent less than the prevailing market price for their shares, the plans also present a rare chance for low-level workers to earn capital gains.

Never mind. The government, in its infinite wisdom, stealthily decided in January that working people in these plans should be taxed on the difference between the discounted price at which they buy the shares and the prevailing market price. As of January 2003, workers and companies offering the plans will have to pay employee tax, currently 7.65 percent, on the difference.

Add that cost to the administrative nightmare of managing such payments and some say companies will dump the plans.

"This would make the plans too burdensome," said Sandra Sussman, executive director of the National Association of Stock Plan Professionals in Concord, Calif. "I've heard from several companies that they would likely not implement new plans."