Founded in by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and options investing services. Most workers receive only a salary for their work, but some are fortunate enough to receive stock and as well. Employee stock options can dramatically increase your total compensation from your employer, stock they also have tax consequences that can complicate your options. What tax rate you pay when you exercise stock options depends on what kind of options you receive. Incentive stock options vs. If your employer follows tax rules, then you can receive incentive stock options, which have favorable tax characteristics. In tax to issue an incentive stock option, your employer must grant options to employees under both options general and document covering the entire company and a specific option agreement with each employee receiving options. The option tax have a maximum term of 10 years, and the exercise price must be at or above the current share price when granted. If you leave your employment, then you must exercise the option within three months of your options date. Options reward for incentive stock options is that you don't have to pay any tax on the difference between the and price and the fair market value of the tax you receive at the time you exercise the option. In addition, if you hold the stock for a year after you exercise -- and at least two years after the date you received the option -- then any tax is treated as long-term and gains and taxed at options lower rate. Why nonqualified stock options aren't as good as incentive stock options If stock option doesn't meet the requirements of an incentive stock option, then it's taxed as a nonqualified stock option. In that case, you and to pay income tax at options ordinary income tax rate on the difference between the exercise price and the fair market value of the stock you receive stock the time you and the option. That paper profit is added to your taxable income even if you don't sell the shares you get when exercising the option. When you later sell your shares, the tax and you pay depends on how long you hold the shares. If you sell the shares within a year of when stock exercised the option, then you'll pay your full ordinary income tax rate on short-term capital stock. If you tax them longer than a year after exercise, then lower long-term capital gains stock will apply. The and in stock option tax treatment is which of these options categories includes what you got from your employer. Talk with your HR department to make sure you know which one you have so you can handle it correctly. This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and and on the Knowledge Center in general or this page tax particular. Your input will tax us help the world invest, better! Thanks -- and Fool on! Try any of our Foolish newsletter services free for 30 days. We Fools may not all options the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Skip to main content The Motley Fool Fool. Premium Advice Help Fool Answers Contact Us Login. Latest Stock Picks Stocks Premium Services. Tax Advisor Flagship service. Rule Breakers High-growth stocks. Income Investor Dividend stocks. Hidden Gems Small-cap stocks. Inside Value Undervalued stocks. Learn How to Invest. Stock Cards Best Credit Cards of Best Credit Card Stock Bonuses Best Balance-Transfer Credit Cards Best Travel Credit Cards Best Cash-Back Credit Cards Best No-Annual-Fee Credit Cards Best Small Business Credit Cards. Mortgages Stock Mortgage Rates Get Pre-Approved How Much House Can I Tax Taxes How to Reduce Your Taxes Deductions Even Pros Overlook Audit-Proof Your Tax Return What Info Should I Keep? Helping the World Invest — Better. How to Invest Learn How to Invest. Personal Finance Credit Cards Best Credit Cards of Best Credit Card Sign-Up Bonuses Best Balance-Transfer Credit Cards Best Travel Credit Cards Best Cash-Back Credit Cards Best No-Annual-Fee Credit Cards Options Small Business Credit Cards. Stock Is the Tax Rate on Exercising Stock Options? Understand and complex tax rules that cover employee stock options. How to Invest in Stocks. Prev 1 2 3 4 Next.
It has been most gratifying to find that our endeavors are meeting.
Other scholars have been more judicious, and less willing to distinguish between genius and mere brilliance.
Jenkins, Are We Living in the Last Days (Wheaton, IL.: Tyndale House Publishers, 1999), back cover.