The income tax rules for an exercise of non-qualified stock options are relatively straightforward. You generally do not owe taxes when you are granted non-qualified stock options. You don’t owe ...
The income tax rules for an exercise of non-qualified stock options are relatively straightforward. You generally do not owe taxes when you are granted non-qualified stock options. You don’t owe when your non-qualified stock options vest, either. This no-tax timeframe allows you to defer income tax while potentially creating considerable wealth if the value of your shares increases. Exercising your non-qualified stock options is what creates a taxable event. But because you control when you exercise your options, you can manage your income tax by deciding when and how many shares to exercise. You also control how well you plan for that taxable event when you create it by exercising. Two Taxes to Consider for your Non-Qualified Stock Options The lifespan of your options includes the period beginning when your options are granted and ending when you sell the stock. During this time, you need to consider two different types of tax you may need to pay: Earned Income Tax: Earned income is taxed as ordinary income and is subject to Social Security and Medicare wage taxes. Capital Gains Tax: Capital gains are taxed as ordinary income (for short-term capital gains) or as long-term capital gains, depending on the holding… Read More »
