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NQSOs: Basics

Will my employer report to the IRS any income from an NQSO exercise?
Yes. Your employer will include the amount of the spread at exercise of an NQSO on the Form W-2 it sends to you and the IRS. For federal income tax, the spread will be included as additional wages paid to you. Companies use Code V in box 12 of the W-2 to identify the NQSO income included in boxes 1, 3, and 5. For more information on tax withholding and reporting for NQSOs, see the relevant FAQs in the Tax Center. To learn how your company may calculate the withholding amount, see a related FAQ.

For nonemployees, the spread is reported to the IRS in a similar manner but on IRS Form 1099 (Miscellaneous Income). Copies of Form W-2 and 1099 are required to be sent to employees and service providers by January 31 of the year after the year in which the income was earned. Similar filings are made with your state and local tax authorities, if applicable.

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