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Underwater Options   
Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.

Basics: Core Concepts

Are all stock options taxed the same?
No. The taxation of your stock options depends on whether they are incentive stock options (ISOs) or nonqualified stock options (NQSOs). For details on the taxation of stock options, see the sections of the Tax Center on NQSOs and ISOs. For the taxation of stock options outside the United States, see the Global Tax Guide.

While the tax treatment of stock appreciation rights is similar to that of NQSOs, stock options are taxed differently than restricted stock, RSUs, performance shares, and employee stock purchase plans. A table summarizing the tax treatment of each grant type is available in another FAQ.

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