Non-Qualified Stock Option (NQSO)

A Non-Qualified Stock Option (NQSO) is a benefit companies give employees, allowing them to buy company stock at a set price in the future. Unlike incentive stock options, NQSOs don't qualify for special tax treatment. When you exercise the option, meaning you buy the stock, you may owe taxes on the difference between the stock’s current value and the fixed price, as ordinary income. If you sell the stock later, you might owe additional capital gains taxes. NQSOs are a way to align employees’ interests with company success, but they involve specific tax considerations.