Will exercising NQSOs impact my social security benefits?
October 10, 2014
Subject: Non-Qualified Stock Options (NQSO)
Date: Thu, 16 Aug 2007
I received NQSOs for 2100 shares from my employer at an average price of $13. I retired a year ago at age 63, and am now receiving social security. I have 3 years to exercise the options or they will lapse. The excess of the fair market value of the shares over the option price is $56,000.
Is this gain ordinary income subject to regular income, social security and Medicare taxes rather than a capital gain? If this is so, should I delay exercising the options until after I am age 65 so the income will not impact my social security benefits?
Any help from you is deeply appreciated.
Date: 12 Sep 2007
Yes, the income will be taxed as wages, subject to income and employment taxes.
I am not an expert on social security benefits. My understanding is that the option income is considered a separate category of “deferred compensation” income that should not reduce your benefits. I suggest that you consult with a social security case worker about that issue.