Comments on: How Non-Qualified Stock Options Work

By: nef

nef — Tue, 08 Nov 2011 09:15:31 +0000

hey, props for the example, i got a question related to this. I have just accepted’Nonqual’ grant offered to me by the company i work for. I have x number of shares at a given price totaling a certain amount.
Im a bit confused, are the shares there for me to buy at that price? Or sell??

Props!

By: Bill

Bill — Mon, 03 Nov 2008 17:24:05 +0000

In your research, did you ever come across a situation like this?

I recently left a pre-IPO company with 1000 vested incentive stock options. These 1000 options vested in September of 2007, and I had to pay income tax (for the 2007 year) based on the stock price at that time. At this time, the options are unable to be exercised or sold, and there are no plans for this to change. It seems to me that since I was forced to pay income tax, I should have some sort of a tangible asset that could actually be sold…

By: Anonymous

Anonymous — Thu, 30 Oct 2008 16:41:49 +0000

I am not sure but this example is post ipo or non qualified and is how it has worked for a number of my clients. I would assume it works the same for ipo shares since you have an option to purchase at a cetain price. Presumably the shares are worth more than the option price when exercised. I have no experience with a a pre ipo option.

By: jim

jim — Thu, 30 Oct 2008 01:53:44 +0000

Does it have to do with whether it’s pre-ipo or post-ipo? Everywhere I’ve read has explained it the way I explained it in the above…

By: Anonymous

Anonymous — Thu, 30 Oct 2008 00:34:42 +0000

I enjoy reading your blog but it does not work as you wrote. Your wife’s option if exercised as in your example would give her ordinary income of $2 per share or $500 which would be included on her w-2. Also she would have to pay for the shares( option to purchase at 10). Normally the options are exercised and the shares are sold simultaniously. 250 shs at $12 for $3000 less the purchase price $2500 for a $500 profit. The company then withholds taxes federal including Fica and state( lets say 40%) netting $300.

You can purchase and keep the shares but then you probably need to come up with the tax withholdings. I used 40% based on a 28% federal tax; 7.65% fica/ medicare and 4.35% for state income tax.

By: jim

jim — Wed, 29 Oct 2008 22:57:11 +0000

Exercising means you’re buying the shares you were awarded at the grant price.

By: Eric N.

Eric N. — Wed, 29 Oct 2008 22:44:33 +0000

It sounds confusing to me lol. What does exercising even mean?