ZMH » Topics » U.S. Federal Income Tax Consequences

This excerpt taken from the ZMH DEF 14A filed Mar 20, 2009.
U.S. Federal Income Tax Consequences
 
The U.S. federal income tax consequences arising with respect to awards granted under the Director Stock Plan will depend on the type of the award. The following provides only a general description of the application of federal income tax laws to


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ZIMMER HOLDINGS, INC.                                                                                                                                                                             2009 PROXY STATEMENT

certain awards under the plan. This discussion is intended for the information of stockholders considering how to vote at the meeting and not as tax guidance to non-employee directors, as the consequences may vary with the types of awards made, the method of payment or settlement and other factors.
From the non-employee directors’ standpoint, as a general rule, ordinary income will be recognized at the time of payment of cash or delivery of actual shares of common stock (for example, upon exercise of nonqualified stock options). Future appreciation on shares of common stock held beyond the ordinary income recognition event will be taxable at capital gains rates when the shares of common stock are sold. We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the non-employee director, and we will not be entitled to any tax deduction in respect of capital gain income recognized by the non-employee director.
 
Federal Income Tax Consequences

     The following is a brief summary of the principal federal income tax consequences of awards under the TeamShare Plan. The summary is based on current federal income tax laws and interpretations thereof, all of which are subject to change at any time, possibly with retroactive effect. The summary is not intended to be exhaustive.

     A participant who receives a nonqualified option does not recognize taxable income upon the grant of the option, and the company is not entitled to a tax deduction. The participant will recognize ordinary income upon the exercise of the option in an

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ZIMMER HOLDINGS, INC. 2005 PROXY STATEMENT

amount equal to the excess of the fair market value of the option shares on the exercise date over the option price. Such income will be treated as compensation to the participant subject to applicable withholding requirements. The company is generally entitled to a tax deduction in an amount equal to the amount taxable to the participant as ordinary income in the year the income is taxable to the participant. Any appreciation in value after the time of exercise will be taxable to the participant as capital gain and will not result in a deduction by the company.

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