Tax Center Global Tax Guide / Glossary / Discussion / About Us
Register Log In
myRecordsmyToolsmyClients
   Basics   
Core Concepts   
Benefits   
Grants   
Vesting   
Exercise   
Sales   
Valuation & Expensing   
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

What is an employee stock option?

Generally, an employee stock option is a right that a company grants an individual to purchase a specific number of shares of its stock at a set price during a specified period.

Example: You receive a grant of 1,000 options with an exercise price equal to the market price on the date of grant. You will make money if the stock price goes up after grant. You have 10 years in which to exercise your options to obtain ownership of the 1,000 shares of stock. Review your stock plan document for details on exercise prices, vesting, exercise procedures, and the impact of termination on your stock grant.

Companies grant two kinds of stock options: nonqualified stock options (NQSOs), the most common type; and incentive stock options (ISOs), which offer tax benefits but also raise the risks of the alternative minimum tax (AMT).

Print this FAQ: Printer icon
Share this FAQ:
Share this article on LinkedIn Share this article on Facebook Share this article on twitter
Prior FAQ in list Return to list Next FAQ in list