Tax
Non-Qualified Stock Option (NSO)
A stock option whose spread at exercise is taxed as ordinary W-2 income.
NSOs (also called NQSOs) are stock options without ISO's special tax treatment. The spread between strike and fair market value at exercise is ordinary income, taxed as W-2 wages with payroll tax withheld.
After exercise, you own the shares. Future appreciation/decline becomes capital gain/loss, measured from the FMV at exercise.
Common pitfalls
- Default 22% supplemental withholding is too low for high earners — you'll owe at filing
- Not accounting for cashless exercise mechanics correctly when reconciling 1099-Bs
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