Tax implications of U.S. company granting non-qualified stock options (NSO) to a non-resident?

How do I avoid tax on non-qualified stock options?

Once you exercise your non-qualified stock option, the difference between the stock price and the strike price is taxed as ordinary income. This income is usually reported on your paystub. There are no tax consequences when you first receive your non-qualified stock option, only when you exercise your option.

How are NSO taxed?

So how exactly are NSOs taxed? NSOs are taxed at ordinary income tax rates (the highest possible rate, just like your salary) twice: When you exercise them. Then again when you make money with them after your company exits.

What causes a nonstatutory stock option to be taxable upon grant?

For nonstatutory options without a readily determinable fair market value, there’s no taxable event when the option is granted but you must include in income the fair market value of the stock received on exercise, less the amount paid, when you exercise the option.

How are US stock options taxed in UK?

When the Option is exercised, the option gain is subject to income tax (up to 45% in the UK and 37% in the US). This is usually a payroll event and shares are often sold to cover the income tax liability.

Are NSO taxed twice?

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.

How do NSO stock options work?

NSOs work by a company giving employees or other stakeholders options to buy company shares as part of a compensation package. The shares have a specific exercise price. After vesting, NSO recipients can decide when to exercise, based on whether the company’s stock price rises above the exercise price.

When should you exercise NSO stock options?

The most common expiration of NSOs is 10 years, but this does vary from company to company. Since time is often your friend when it comes to stock options, you can simply sit out the first couple of years to allow for growth and start to exercise your NSOs in a systematic way when you are nearing expiration.

Are NSO better than ISO?

Because employees with ISOs don’t need to pay taxes immediately upon exercising their options, ISOs are generally more tax-advantaged than NSOs. Those exercising ISOs only pay taxes when they sell their shares.

Which is better NSO or ISO?

ISOs only apply while you are still employed at the company that issued the grant and cannot be extended beyond 90 days after you leave. NSOs don’t require employment and can be extended well beyond 90 days.

Are stock options subject to tax?

Just as if you bought a stock in the open market, if you acquire a stock by exercising an option and then sell it at a higher price, you have a taxable gain.

How do you avoid double tax on stock options?

Alert: If the cost basis is not reported on Form 1099-B, avoid double taxation by listing the market price on the date of exercise as your cost basis in the stock. The basis should be the exercise price plus the amount of ordinary income you already paid taxes on.