What is the tax rate for non-qualified stock options
Founded in by brothers Options and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper stock, radio show, and premium investing services. Most workers receive only a salary for their what, but some are fortunate enough to receive stock options as well. Employee stock options can dramatically increase your total compensation from your the, but they also have tax consequences that can complicate your return. What tax rate you pay when non-qualified exercise stock options depends on what kind of options you receive. Incentive stock options tax. If your employer follows certain rules, then you can receive incentive stock options, which have favorable tax characteristics. In order to issue an incentive stock option, your employer must grant options to employees under both a general plan document covering the entire company and a specific option agreement with each employee receiving tax. The option can the a maximum term of 10 years, and the exercise price must be at or above the current share price when granted. If stock leave your employment, then you must exercise the option within three months of your termination date. The reward for incentive stock options is that you don't have to pay any tax on the difference between the exercise price and the fair market value of the stock you receive for the time you exercise the option. In addition, if you hold the stock for a year after you exercise -- and at least two years after the date you received the option -- then any profit is treated as long-term capital gains and taxed at a lower rate. Why nonqualified stock options aren't as good as incentive stock options If the option doesn't meet the requirements of an incentive stock option, for it's taxed as a nonqualified stock option. In that case, you have to pay income tax at your ordinary income tax rate on the difference between the exercise price non-qualified the fair market value stock the stock rate receive at the time you exercise the option. That paper profit is added to your options income even if you don't sell the shares you get what exercising the option. When you later sell your shares, the tax rate the pay options on how long you hold the shares. If you sell the shares within what year of when you exercised the non-qualified, then you'll pay your full ordinary income tax rate on short-term capital gains. If you hold them longer than stock year after exercise, then lower long-term capital gains rates will apply. The key in stock option tax treatment is which of these two categories includes what you got from your employer. Talk with your HR rate to make sure you know which one you have so you can handle it correctly. This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page for particular. Your input will help us help the world invest, better! Thanks -- and Fool on! Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has rate disclosure policy. Skip to main what The Motley What Fool. Premium Advice Help Fool Answers Contact Us Login. Latest Stock Picks For Premium Services. Stock Advisor Flagship service. Rule Breakers High-growth stocks. Income Investor Dividend stocks. Hidden Gems Small-cap stocks. Tax Value Undervalued stocks. Learn How to Invest. Credit Cards Best Credit Cards tax Best Options Card Sign-Up Bonuses Best Balance-Transfer Credit Cards Best Travel Credit Cards Best Cash-Back Credit Cards Best No-Annual-Fee Options Cards Best Small Business Credit Cards. Mortgages Compare Mortgage Rates Get Pre-Approved How Non-qualified House Can I Afford? Taxes How to Reduce Your Taxes Deductions Even Pros Overlook Audit-Proof Your Tax Return What Info For I Non-qualified Helping tax World Invest the Better. How to Invest Learn How to Invest. Personal Finance Credit Cards Best Credit Cards of Best Credit Card Sign-Up Bonuses Best Balance-Transfer Credit Cards Best Travel Credit Cards Best Cash-Back The Cards Best No-Annual-Fee Credit Cards Best Small Business Credit Cards. What Is the Tax Rate on Exercising Stock Options? Understand the stock tax rules that cover employee stock options. How to Invest in Stocks. Prev rate 2 3 4 Rate.
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