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When do I issue a 1099-MISC vs a W-2 for NQSO exercises?

The Price of Exercise.

Does a company need to issue a MISC to a consultant when the spread for the exercise of a NQSO is less than $? If the stock option agreement is written so the service may be provided as a consultant or an employee, do you determine whether to issue a or W-2 based on the status of the grantee on the date the option is . Aug 29,  · Information about Form MISC, Miscellaneous Income, including recent updates, related forms and instructions on how to file. Form MISC is used to report rents, royalties, prizes and awards and other fixed determinable income.

IRS Resources

Once a nonemployee exercises nonqualified stock options, the business granting the option must report the nonemployee's gain to the IRS on Form MISC, as only employee nonqualified options are reported on a W-2 form. The payer is the business issuing the nonqualified stock. Insert the company's name, address and telephone number in the payer's box. Insert the payer's federal identification number in the labeled box. Enter the recipient's information on the form. The recipient is the person who received the nonqualified stock.

Enter the recipient's name, address and identification number in the labeled boxes. The identification number is the recipient's federal identification number or Social Security number. Enter the account number you assigned the recipient, if any, in the account number box. The box is for a number you gave the recipient for your records, but you're not required to provide an account number. Determine the fair-market value of the stock on the day the recipient exercised the option to buy.

The fair-market value is typically the average of the purchase day's high and low prices for a publicly traded company. Calculate how much the recipient gained from the nonqualified stock.

For a salaried, regular employee, the employer will report the compensation on Form W-2, simply adding it to the wages or salary earned during the year. In addition, the employer must withhold taxes for this income, at whatever the employee's withholding rate is. Independent contractors have no withholding from compensation reported on a , but you may need to make quarterly estimated payments to the IRS to keep up with your tax obligation.

The exercise of a nonqualified stock option can bring about a serious tax hit, even if you don't receive any cash from the transaction. You must report the compensation as business income on Schedule C and add it to your adjusted gross income on Form In addition, you must report the money on Schedule SE to calculate self-employment tax, which covers your obligation for Medicare and Social Security taxes.

If you sell the shares for more than the exercise price, you've got a capital gain as well and will report that on Schedule D. Holding a bachelor's degree from Yale, Streissguth has published more than works of history, biography, current affairs and geography for young readers.

Qualified and Nonqualified Options The IRS allows favorable tax treatment of "statutory" stock options, on which you pay tax only when you sell the stock.

The Price of Exercise For nonqualified stock options, taxable income is generated on exercise -- the date that you actually use the option to purchase the stock.

W-2 vs For a salaried, regular employee, the employer will report the compensation on Form W-2, simply adding it to the wages or salary earned during the year. Reporting Exercise and Sale The exercise of a nonqualified stock option can bring about a serious tax hit, even if you don't receive any cash from the transaction.

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Qualified and Nonqualified Options

If you sell the shares for more than the exercise price, you've got a capital gain as well and will report that on Schedule D.

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Topic -- Stock Options.

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