Arkansas 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
What Is a Non-Qualified Stock Option (NSO)? A non-qualified stock option (NSO) is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option.
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.
RSUs are easier to understand, manage, and most often considered less risky, with less downside. NSOs are more complex, harder to manage, and riskier, with more downside. Generally, you will receive more NSOs than RSUs. It is often helpful to breakout your considerations into tax and investment issues.
Profits made from exercising qualified stock options (QSO) are taxed at the capital gains tax rate (typically 15%), which is lower than the rate at which ordinary income is taxed. Gains from non-qualified stock options (NQSO) are considered ordinary income and are therefore not eligible for the tax break.
Restricted stock (also called letter stock or section 1244 stock) is usually awarded to company directors and other high-level executives, whereas restricted stock units (RSUs) are typically awarded to lower-level employees. Restricted stock tends to have more conditions and restrictions than an RSU.
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.
NSOs vs. RSUs NSOs give you the option to buy stock, but you might decide to never exercise them if the company's valuation falls below your strike price. In comparison, restricted stock units (RSUs) are actual shares that you acquire as they vest. You don't have to pay to exercise RSUs; you simply receive the shares.
If you are on track toward meeting a retirement goal that is 10+ years out, it makes sense to choose options over RSUs. On the other hand, if you want to earmark this equity compensation for a retirement or education goal that is in five years or less, opting for more RSUs might be a better choice.