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Simple English definitions for legal terms
NQSO
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A quick definition of NQSO:
Term: NQSO
Definition: NQSO stands for nonqualified stock option. It is a type of stock option that is not eligible for special tax treatment. When an employee exercises a nonqualified stock option, they must pay ordinary income tax on the difference between the exercise price and the fair market value of the stock at the time of exercise. Nonqualified stock options are often used as a form of compensation by employers to incentivize employees.
A more thorough explanation:
NQSO
NQSO stands for nonqualified stock option. It is a type of stock option that is not eligible for special tax treatment. Nonqualified stock options are usually granted to employees as a form of compensation.
An employee is granted 1,000 nonqualified stock options at a strike price of $10 per share. The current market price of the stock is $20 per share. The employee exercises the options when the stock price reaches $25 per share. The employee will pay taxes on the difference between the strike price and the market price at the time of exercise, which is $15 per share.
This example illustrates how nonqualified stock options work. The employee has the right to purchase the stock at a discounted price, but will have to pay taxes on the difference between the strike price and the market price at the time of exercise.