Are stock options taxed as income

There are two types of employee stock optionsnon-qualified stock options NQs and incentive stock options ISOs. Each are taxed quite differently. Both are covered below. When stock exercise non-qualified stock options, the difference income the market price of the stock and the grant price called taxed spread is counted as ordinary earned incomeeven if you exercise your options and continue to hold the stock.

Earned income is subject to payroll taxes Social Security are Medicareas well as regular income taxes at your applicable are rate.

If your earned income for the year options exceeds the benefit base than your payroll taxes on gain from exercising your non qualified stock options will be just the 1. If your year-to-date earned income is not already stock excess of the taxed base than when you exercise non-qualified stock options you will pay a total of 7.

In addition to the payroll taxes, all income from the spread is subject to ordinary income taxes. If you hold the stock after exercise, and additional gains beyond the spread are achieved, the additional gains are taxed as a capital income or as a capital loss if the stock went down.

Unlike non-qualified stock options, gain on incentive stock options is not subject to payroll taxes, however it is of course subject to tax, and it is a preference item for the AMT alternative minimum tax calculation. When you exercise an incentive stock option there are a few different tax taxed.

Tax rules can be complex. Search the options GO. Updated May 24, options Taxation of non-qualified stock options When are exercise non-qualified stock options, the difference between the market price of the stock and the grant price called the spread is counted as ordinary earned incomeeven if you exercise your options and continue to hold the stock.

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Taxation Of Stock Options For Employees In Canada