NQSOs: Taxes

• It is subject to mandatory supplemental wage withholding, unless you are a consultant.
• The income and withholding taxes will appear on your W-2 in the appropriate boxes, as illustrated in another FAQ.
• The spread at exercise is subject to Social Security and Medicare taxes, along with any applicable state taxes.

Example: Your exercise price for 1,000 NQSOs is $12 per share. The market price is $20 at exercise. Ordinary income of $8,000 [($20 - $12) x 1,000] is added to your taxable income and is subject to withholding.

In the calculation for the amount of compensation income, the spread is not reduced by any brokerage commission if you sell the stock in a same-day/cashless exercise. See the Tax Center for FAQs showing how you report this on your tax return.