What taxes are withheld for NQO exercises?

October 10, 2014

Date:   Mon, 21 May 2007
From:   Linh

An individual was employed by a company where he held nonqualified stock options. After terminating employment, the individual exercised some of the non-qualified options and sold them on the same day. What taxes are required to be withheld? The individual terminated during last year, 2006. How about 2007? (From a payroll coordinator in Texas.)

Thank you,


Date:   05 Jun 2007

Hello Linh,

Since the options relate to being an employee, the income from exercising the options is subject to income tax withholding. The rate is 25% for the first $1,000,000 of supplemental compensation and 35% for supplemental compensation exceeding $1,000,000. The income is also subject to social security, Medicare, and federal unemployment taxes. Also check payroll taxes in your own state.

Shouldn’t you be getting this information from your company’s CPA firm?

Best wishes,

Mike Gray

For more information about non-qualified stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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