What is the difference between iso and nqso same-day sales?
August 10, 1999
Subject: ISO vs NQSO
Date: Wed, 4 Aug 1999
I had a question regarding exercising the two kinds of options. Given the same exercise price, given that I exercise the options and sell the stock on the same day, what is the difference between the money that I’ll see, taxes that I’ll pay and anything else for that matter.
Thanks for writing.
Your question is very vague. But to get to the key issue, a same-day sale of an ISO has a very similar treatment to an NQSO. They both result in ordinary income.
Most employers do not withhold income taxes for the ordinary income from an ISO, but do for an NQSO.
Most employers are not withholding and paying employment taxes (FICA and Medicare) for ISOs, but are for NQSOs. A recent IRS Letter Ruling, 199926034, based on the Sun Microsystems Tax Court ruling, indicates that ISOs are subject to employment taxes, but the IRS is postponing enforcing withholding for ISOs exercised before 2003.