With NSOs, you pay ordinary income taxes when you exercise the options, and capital gains taxes when you sell the shares. With ISOs, you only pay taxes when you sell the shares, either ordinary income or capital gains, depending on how long you held the shares first.

What is the difference between ISO and NSO?

If the grant is an NSO, the employee pays federal income taxes on $0.90 of income per share at exercise, even though the employee has not sold any shares. If the grant is an ISO, there is no federal income tax due at exercise.

When do you have to file W-2 for NSO?

The employment tax withholding and Form W- 2 reporting requirements continue to apply on exercise of an NSO even when the employee option- holder terminates employment with the company prior to exercise of the option. 5 Option exercises by service providers other than employees (e.g., 2

What kind of taxes do you have to pay on NSO?

Employment Tax Withholding, Depositing, and Reporting The taxable spread on the exercise of an NSO by an employee (or at vesting if the stock received on exercise remains subject to a SROF) is considered wages subject to employment tax withholding and must be reported by the employer on Form W-2, Wage and Tax Statement. The

What happens when an employee option is exercised?

When option is exercised, the employee has ordinary income for the difference between the price they pay (grant price) and the fair market value (FMV) on the date they purchased the stock (exercise price). Any compensation income received from your employer in the current year is included on Form W-2 in Box 1.

What happens when you exercise a non-qualified stock option?

When you exercise your non-qualified stock options, you go from having a right to shares of company stock to being an owner of company stock. As an owner of the stock, you can sell your shares immediately or hold them indefinitely, subject to other rules or regulations such as blackout periods.