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Also known as: NSO, NQO, non-qualified options

Non-Qualified Stock Options

TechnicalLegalOperations

Definition

Non-Qualified Stock Options: Non-Qualified Stock Options are stock options taxed as ordinary income on the spread (difference between exercise price and fair market value) at exercise. Unlike ISOs, NSOs can be granted to contractors and advisors, not just employees.

Example Usage

“As a contractor, I received NSOs instead of ISOs, which means I'll pay income tax when I exercise.”

Common Misconceptions

NSOs are worse than ISOs. For some situations (early exercise, AMT), NSOs can be better.
Only non-employees get NSOs. Employees often get NSOs for grants exceeding ISO annual limits.
NSO taxes are all at exercise. You also owe taxes on subsequent gains when you sell.

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