Non-Qualified Stock Option (NQSO)

A Non-Qualified Stock Option (NQSO) is a type of employee stock option that doesn’t meet the requirements for special tax treatment under the Internal Revenue Code (IRC). Unlike Incentive Stock Options (ISOs), NQSOs are subject to ordinary income tax when exercised and taxed on the difference between the exercise price and the fair market value of the stock.

NQSOs are often used as part of employee compensation packages, particularly in startups or companies looking to attract and retain talent. These stock options allow employees to purchase company shares at a set price within a specified time frame, and the company can deduct the value of the options as a business expense.