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, so you'll owe at filing
- Not accounting for cashless exercise mechanics correctly when reconciling 1099-Bs
Related service
See personal tax servicesHave a Non-Qualified Stock Option (NSO) situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.