Illinois Incentive and Nonqualified Share Option Plan
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How to fill out Incentive And Nonqualified Share Option Plan?
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FAQ
Nonqualified: Employees generally don't owe tax when these options are granted. When exercising, tax is paid on the difference between the exercise price and the stock's market value. They may be transferable. Qualified or Incentive: For employees, these options may qualify for special tax treatment on gains.
For example, RSU and NQSO have different rules about when they are taxed (RSUs at vesting, no choice) (NQSOs at exercise, choice of timing). It's also reasonable to assume that when offered the choice, you may get ?more? NQSOs than you would RSUs. And finally, RSUs do not cost anything to purchase, whereas NQSOs do.
Taxation on nonqualified stock options As mentioned above, NSOs are generally subject to higher taxes than ISOs because they are taxed on two separate occasions ? upon option exercise and when company shares are sold ? and also because income tax rates are generally higher than long-term capital gains tax rates.
ISOs have more favorable tax treatment than non-qualified stock options (NSOs) in part because they require the holder to hold the stock for a longer time period. This is true of regular stock shares as well.
Unlike NQSOs, ISOs cannot be transferred to others (e.g. upon divorce or by gifting).
NQOs are unrestricted. As such, they can be offered to anyone. That means that you can extend them to not just standard employees, but also directors, contractors, vendors, and even other third parties. ISOs, on the other hand, can only be issued to standard employees.
A major difference is that the NSO tax is withheld at the point of exercise whereas the potential AMT on ISOs isn't due until you file taxes next April. You won't know if you are even subject to AMT until after your taxes have been calculated.
In practice, there's no material difference between ISOs and NQOs. However, ISOs may have the advantage in situations where employees should reasonably exercise and hold (for instance, the company goes public). The tax regulations for option grants and exercises are very complicated and can change at any time.