What Tax Form Do I Use for the Exercising of Non-Statutory Stock Options?
When an employee exercises non-statutory stock options, the profit from the options counts toward income for that tax year. According to the Internal Revenue Service, your employer should report the amount on your W-2 and you should simply add the number with any other compensation and report the grand total from your W-2 as your income on the Form 1040.
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Forms and Records
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In most situations, your employer should report the taxable stock option to the IRS with your other compensation (salary or wages, benefits and withholding), and all that information should appear together on the W-2, which is the taxable income form that employers send to their employees at the end of every calendar year. Some people may receive a Form 1099, which is a miscellaneous income form.
Forms and Reporting
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When filing your taxes, use a Form 1040 to report your gross income. Any profits from exercising stock options must be included in that number, regardless of whether your employer properly reported the benefit on a W-2 or Form 1099.
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Exercising and Tax
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The IRS taxes non-statutory options as income when employees exercise them -- meaning use the option to buy discounted stock. The IRS only taxes the difference between the option price and the market price at the time of sale however (for example, if your option price is $20 per share and the stock is trading at $25 per share, you pay taxes on $5 per share). You must pay taxes on this difference even if you keep the stock.
Terminology
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Most employees with stock options in their benefit packages have what the IRS calls "non-statutory" stock options, though most companies refer to the same thing as nonqualified options.
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References
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