Basics Of Stock Grants Quiz

Test your basic knowledge of equity compensation.

Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading. For in-depth courses of study that offer CE credits, see the myStockOptions Learning Center.

1. Why do companies make stock grants to employees?

To help make employees care about company performance as shareholders do To add to employees' compensation without using extra cash as salary To give valuable employees an incentive to stay All of the above

2. What documents should you see to understand the details of your stock grant?

Your company's stock plan Your stock grant agreement Forms your company uses for exercises and any tax-withholding elections All of the above

3. What is an employee stock option?

An option to be paid in stock instead of cash A right to buy company stock at a guaranteed discount for a fixed term A right to buy company stock at a specified price for a fixed term A grant of company stock as a salary bonus

4. What is a major difference between nonqualified stock options (NQSOs) and incentive stock options (ISOs)?

NQSOs can be granted to outside consultants; ISOs can't ISOs give you better tax treatment if you meet certain requirements Exercising ISOs can subject you to the alternative minimum tax All of the above

5. What is restricted stock?

A type of stock option A grant of company stock that you cannot sell until vesting The collective term for a grant of stock units A grant of company stock you must register with the SEC

6. What is an employee stock purchase plan?

A program in which stock is granted with restrictions on sale and a risk of forfeiture until it has vested by continued employment or by reaching a performance target A contractual right your company grants you to purchase a specified number of shares of the company's stock at a specified price for a specified period (generally five or ten years) A plan that provides for regular, ongoing purchases of company stock, usually through accumulated post-tax payroll deductions A type of incentive grant in which you are not issued actual shares of stock on the grant date but receive instead an account credited with a certain number of hypothetical shares

7. What is one difference between restricted stock and restricted stock units (RSUs)?

You don't get shareholder voting rights with RSUs An RSU is one share of restricted stock With RSUs, vesting must be based on time With RSUs, you don't pay tax until you leave the company

8. What advantage does an employee stock purchase plan (ESPP) offer if it meets certain qualifications set by the Internal Revenue Code?

Sales (but not purchases) are tax-free if certain holding periods are met Taxes are deferred until sale, and then all gain is ordinary income You get long-term capital gains for most of your gains at sale if you meet certain holding periods All income is treated as capital gain

9. What IRS forms do you use to report capital gains on your tax return after you have sold company shares?

Form 8949 and Schedule A Form 8810 and Schedule B Form 8810 and Schedule C Form 8949 and Schedule D

10. What is the tax rate for withholding on supplemental income from option exercises or restricted stock/RSU vesting?

25%, regardless of income amount 15% or 20%, depending on income amount Normally 22%, but 37% for amounts of annual income above $1 million Normally 28%, but 39.6% for amounts of annual income above $1 million

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