Non-Statutory Stock Option
Content
Definition
A Non-Statutory Stock Option is a type of stock option that does not qualify for special tax treatment under the US Internal Revenue Code.
Usage and Context
Non-statutory stock options (NSOs) are granted by employers to employees, allowing them to purchase company stock at a set price, often used as part of compensation packages.
Frequently asked questions
- What is a non-statutory stock option? A non-statutory stock option (NSO) is an option granted by an employer to an employee to buy company stock at a predetermined price, without the tax benefits of incentive stock options (ISOs).
- Are non-statutory stock options taxable? Yes, non-statutory stock options are taxable. Employees must pay income tax on the difference between the exercise price and the fair market value of the stock at the time of exercise. Additionally, any subsequent gain or loss upon selling the stock is subject to capital gains tax.
- What is the difference between RSU and non-statutory stock options? Restricted Stock Units (RSUs) are company shares granted to employees that vest over time, while non-statutory stock options give employees the right to purchase company stock at a fixed price. RSUs are taxed as ordinary income when they vest, whereas NSOs are taxed at exercise and potentially again at sale.
Benefits
Non-statutory stock options can attract and retain employees, provide potential financial upside, and align employee interests with company performance.
Conclusion
Non-statutory stock options are a valuable tool for companies to incentivize employees, though they come with specific tax implications and do not offer the special tax treatment of incentive stock options.
