Stock Options

There are many types of investments out there, so it can be difficult navigating the right ones for you. Whether your goal is to build up your retirement savings or simply become more financially stable, stock options might be a good option to pursue. Learn more about them here, as well as the taxes on stock options…

What are Stock Options?

Wondering about the stock options definition? A stock option offers the holder the right to purchase or sell a specific number of shares of stock as compensation for your services. This widely-used investment type is a form of stock-based compensation used to incentivize employees.

What are Employee Stock Options?

Employee stock options are options your employer grants you. Two basic types are:

• Qualified (statutory) stock options
• Nonqualified (nonstatutory) stock options

What Are the Types of Qualified Stock Options?

There are two groups of qualified stock options — also known as statutory stock options — are:

• Incentive stock options (ISOs)
• Options granted under an employee stock purchase plan

All other employee stock options are nonqualified stock options. These are also known as nonstatutory stock options.

Does the IRS Tax Stock Options?

If you’re wondering, “Does the IRS tax stock options?” The answer is dependent on the type of stock option you have.

More on Stock Options Tax

Depending on the type of stock options that your employer grants, you could have income tax or AMT consequences when the stock options are granted, excised, or when the stock is sold. If you sell your stock, you will need to calculate your cost basis and holding period.

Tax Forms for Stock Options

Your employer will issue an IRS Form 3921 if you exercised your incentive stock options.

Your employer will issue an IRS Form 3922 if you transfer or sell stock purchased by exercising options granted under an employee stock purchase plan.

Get Help with Stock Options Taxes

While a valuable financial asset, stock options tax can be complex to report. So, it’s important to find the right tax support to properly report stock options.

At H&R Block, we want you to feel confident as you make financial decisions. If you have questions, know that H&R Block’s tax pros are here for you.