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NQSOs

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.


NQSOs

Nonqualified stock options (commonly abbreviated NQSOs) are the most common type of option. Browse an overview of this section below, or explore the subtopics to the left. See also the NQSO sections of the Tax Center.

Selected Articles

Taxes Advanced

12 Tax-Return Mistakes To Avoid With Stock Options And ESPPs

UPDATES! The 2017 tax season has the potential to be confusing if you sold stock last year. This article explains common errors to avoid when reporting stock sales on your tax return and provides helpful guidance on various other tax topics involving stock options and ESPPs.
Basics

Stock Options 101: The Essentials

Your company has granted you stock options. Now what? This article explains the essential facts that you must know to understand your stock options and make the most of them.
Taxes Advanced

NQSOs: Tax-Return Tips And Traps This is premium content

Understand the basic tax-reporting requirements of stock options. This article reviews what you need to report on your tax return.
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Taxes

Stock Option Fundamentals (Part 4): NQSO Taxation This is premium content

Understand how and when different taxes apply to NQSOs. You need to consider taxes at exercise and at sale to put together a strategy that maximizes the value of your options.
Taxes Advanced

Avoid Overpaying Tax On Stock Sales: Understand Forms 1099-B And 8949 For Tax-Return Reporting This is premium content

UPDATES! The stock-sale information provided by brokers on IRS Form 1099-B has changed. Cost-basis reporting, both for your broker on Form 1099-B and for you on your tax return, is now more complex, confusing, and vulnerable to errors. This article explains the crucial facts you must know to avoid overpaying tax or attracting unwanted IRS attention.
Taxes Advanced

VIDEO! Tax-Return Forms And Reporting Rules For Stock Sales

Learn how to prevent costly tax return mistakes with this animated presentation on IRS Form 1099-B, IRS Form 8949, and Schedule D.
This is simply a selection of the many articles in this section.
Use the navigation to the left to explore all of the categories in this section.

Selected FAQs

Basics

What are the top 10 questions I should ask about my stock options?

You should know the answers to the following questions. Understanding the topics involved will help you make the most of your stock options and prevent costly mistakes...
Taxes

How is the spread at exercise of an NQSO taxed for federal income-tax purposes?

The full spread for a nonqualified stock option is included in your gross income for the year of exercise as ordinary income...
Taxes

When I hold NQSO shares after exercise, what tax applies when I later sell the stock?

Capital gains tax applies on the amount of your gains above...
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Taxes

What are capital gains and capital losses? What are the capital gains tax rates?

Capital gain is income that arises from the sale of a capital asset. Gain from the sale of securities held for investment, such as shares acquired from stock compensation...
Taxes

Is the spread at exercise of a nonqualified stock option subject to Social Security and Medicare taxes? This is premium content

Yes. The spread at exercise of an NQSO is considered "wages" for the purposes of...
Taxes

Too much Social Security tax was withheld. How do I recover the excess amount? This is premium content

When too much Social Security tax is withheld above the Social Security wage base during a calendar year, your recovery approach depends on whether...
Taxes

Is the exercise spread of NQSOs subject to federal unemployment taxes?

There is a federal tax (called FUTA) to help fund unemployment benefits. FUTA is imposed on...
Taxes

Is the spread at exercise of a nonqualified stock option subject to state and local taxes? This is premium content

Many states, along with some counties and cities, impose...
Taxes Advanced

W-2 diagram What will my W-2 show after I exercise nonqualified stock options? This is premium content

The gain from your nonqualified stock option exercise(s) is totaled on the W-2 with other income in the following boxes...
Taxes Advanced

May I have my employer withhold more taxes upon my exercise of an NQSO than the minimum required amount? This is premium content

Your actual tax bracket may be higher or lower than the mandatory federal withholding rate. Whether your company can withhold more depends on...
Taxes Advanced

What is backup withholding? How do I prevent it or recover it? This is premium content

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other types of payments that are reported on Form 1099. Your brokerage firm is required to make backup withholding if you are...
This is simply a selection of the many FAQs in this section.
Use the navigation to the left to explore all of the categories in this section.