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Tax Center: NQSO Withholding



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Is the spread at exercise of a nonqualified stock option subject to federal income-tax withholding?
Yes. The spread at exercise is treated as wages for the purposes of withholding federal income tax, which is withheld at the minimum required withholding percentage for supplemental income. This flat rate is 25%, though the less common W-4 rate is permissible. (The withholding rate is 35% for aggregate supplemental income over $1 million in a calendar year.) For the details of what in connection with this withholding will be reported on your W-2, see the annotated example in the Tax Center.
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