Excess Tax Benefit

Excess Tax Benefit refers to the amount by which the tax benefit received from the exercise of stock options or the vesting of stock awards exceeds the associated tax expense recognized in a company’s financial statements.

This situation typically arises in the context of share-based payment transactions where companies receive a tax deduction when employees exercise stock options or when shares vest. The excess is recorded as a reduction in income tax expense on the company’s financial statements, enhancing the overall net income. For example, if an employee exercises stock options and the company realizes a tax deduction of $100,000, but the tax expense recognized was only $70,000, the excess tax benefit would be $30,000.