When are nonqualified stock options taxed?
Example: You have stock options with a $10 exercise price. You exercise them after vesting when the price of your company stock is $12. You have a $2 spread ($12 – $10) and thus $2 in ordinary income. You will also have tax withholding when you exercise the NQSOs.
The proceeds when you sell the shares, whether immediately in a same-day sale or after a holding period, are taxed under the rules for capital gains and losses. You report the stock sale on Form 8949 and Schedule D of your IRS Form 1040 tax return.