Blog

Questions about employee stock options

Get Your Answers Today

If you have questions about employee stock options, get your answers today. Scott Chou answers Quora questions such as: Is it wise to exercise my stock options of a private company on a regular basis or should I wait until I leave the company? What is the difference between a strike price and option value of stock shares at a startup? What is the process for exercising ISO’s at a private company? How is the spread calculated for my W2? What is an unvested option? Do startups have any obligation to notify employees of an impending stock option expiration? I wantRead More

Avoid ISO Payroll Taxes

Avoid ISO Payroll Taxes

At a liquidity event such as an M&A, unexercised stock option grants are typically cashed out for a value equal to the spread between the exercise price and the liquidity price per share net to common stockholders.  When the company executes such a payout, it is considered a compensation event and subject to payroll taxes. This includes both the employee’s medicare and social security taxes as well as the employer’s matching portions.When the company executes such a payout, it is considered a compensation event and subject to payroll taxes. However, if the ISO grant is exercised before the M&A eventRead More

Avoid Triggering $100K Limit

Avoid Triggering $100K Limit on an M&A

If you hold ISOs and your company is acquired, then you may trigger the 100K Limit Rule if your option agreement has an acceleration feature. Suddenly vesting all or more of your unvested options will increase the total number of options you vest for the year. Although your original grant was designed to stay under the 100K Limit, you may suddenly exceed it unintentionally.  As a result, some of your ISOs will be NSOs are more expensive since they are subject to ordinary income tax including the Medicare surtaxes.converted to NSOs in order for you to stay compliant. NSOs areRead More

Difference ISO NSO

Differences ISO vs. NSO

The main differences between ISOs and NSOs all have to do with taxes: 1. Definition More formally known as Qualified Incentive Stock Options (ISOs) aka statutory options and Non-qualified Stock Options (NSOs or NQSOs). The qualification refers to eligibility for special tax treatment. 2. AMT or Ordinary Income Tax When you exercise either stock option, there is a spread between the exercise price and the current Fair Market Value (FMV) that is subject to Tax ISOs receive special tax treatment and are exempted from ordinary income tax on the spread. However, exercising an ISO is subject to Alternative Minimum TaxRead More

Reduce AMT Exercising NSOs

Reduce AMT Exercising NSOs

Alternative Minimum Tax (AMT) was designed to ensure that tax payers with access to favorable tax shelters pay at least a minimum amount of tax. The AMT rate is lower than the ordinary income tax rate applicable to the same level of income since it is considered a minimum amount. The calculation of AMT is based on calculating your taxes two ways and paying the higher figure. If the AMT calculation is higher, then the difference of the AMT method over the ordinary method is your Alternative Minimum Tax. A natural consequence of exercising NSO shares that require immediate AlternativeRead More