Asked by: Xiuhong Offermann
Asked in category: personal finance, options
Last Updated: 18th Jun 2024

What are the tax implications of non-statutory stock options?

Tax Treatment Nonstatutory Stock Options
NSOs are generally taxed at the date they were granted, rather than the date they were exercised. NSOs are subject the ordinary income tax, and employees will report them as W-2 wages. They are also subject federal and state income taxes as well as Social Security, Medicare and Medicare taxes.

How do you report income from non-statutory stock options?

You can report the income on your 1040 at the appropriate time, after you have received it or after exercising it. If you are an employee, the amount will be listed on your W-2 or on a 1099 for non-employees. Add the original purchase price and the taxable income that you reported on the option.

Nonstatutory stock options are taxable upon grant. Nonstatutory stock options that are not readily determinable in fair market value will be exempt from tax. However, you will need to include in your income the fair value of the stock you receive on exercise. This is less than the amount you paid.

This is how stock options will be taxed.

NSOs allow you to pay ordinary income taxes if you exercise your options and capital gains tax if you sell the shares. ISOs allow you to only pay taxes when the shares are sold, regardless of how long you have held them.

What tax is imposed on NSO options?

Tax Treatment for Nonqualified Stock Options Granted. Generally, NSOs aren't taxed when a company grants them to its workers. The fair market value at the date of grant less the amount paid by the worker in order to exercise the option is the taxable amount.