Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I have been granted some non-qualified stock options by my employer. The strike price is the closing price of the company's stock on the grant date. I have read the material that came with the grants, and I've looked at several IRS publications. Here's what I understand about the tax treatment of NQSOs:

The granting of the options is not an event for tax purposes. When the options are exercised, any gain is treated as ordinary income at the time of exercise. If the stock is not liquidated immediately upon exercise, its cost basis is equal to its fair market value on the exercise date. Example: I exercise 100 options with a strike price of $20. The stock is currently trading at $30. This generates 100 * ($30 - $20) = $1000 of ordinary income for me. I pay $2000 plus taxes on $1000 for the 100 shares of stock, which then have a cost basis of $3000.

It is clear that Federal and State income taxes apply to the $1000 gain on the exercise date. Question: Do Social Security and Medicare taxes also apply? The stuff I've been reading seems to imply that this is the case, but hasn't directly said so.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.