Oct 1, 2026 · 16 min · 5 segments
In this episode of Money and Taxes from BB to XYZ, Jason Speciner, CFP®, EA, and Regina Neenan, CFP®, ABFP®, continue their equity compensation series with a look at incentive stock options (ISOs) and…
So let's start with what, in general, employer-sponsored stock options, right, are almost always, and without fail, going to be what we would consider on the secondary market call options, meaning that when you are able to exercise the option, it is going to be for a specified price in the future that you'll be able to purchase the stock, right? The flavors here sort of come down to the tax qualification and...
circumstance of the actual grant and of the shares themselves and the types of options that they are.
If you haven't gone back and listened to our episode on RSUs, restricted stock units, from a couple weeks ago, go back and have a listen.
But as we move deeper here into ISOs and MSOs, equity comp, you get a grant, you have the option to exercise.
So you could reject the grant or you could accept the grant and never do anything with it if you didn't want to.
And sometimes that happens because maybe the stock gets what we call up underwater, right? Or upside down.
And we've seen this in client cases where we've guided folks through whether to exercise or not.
But when it comes to this stock option concept, there's really just kind of like this dividing line for employer stock options that either makes these options qualified or what would be our incentive stock option or ISOs.
Or they otherwise are what we call non-qualified or non-statutory, meaning that there is no sort of rules and law that dictate how they need to function, how they're going to be taxed, etc., other than typical rules of receiving compensation and paying payroll tax and all that fun stuff.
Speaking of that, let's dig a little bit into non-qualified stock options because they're a bit more common.
They're not only – well, they may or may not be more common, but they are easier to implement, I suppose, right, on the employer side because they don't have all these different various program rules, et cetera.
When you issue an NSO – And that option is then exercised, right? The difference between the price that it was exercised at and the value of the stock at that time is going to be considered compensation, right? effectively earn that money just by exercising that option.
And so that right, first and foremost, important to understand with an NSO that is treated as effectively wage compensation, meaning you have everything from income tax to payroll tax, et cetera, to pay potentially on that exercise.
And you just see that on your regular pay stub and then on your W-2 when you get that at tax time, right? Yeah.
So let's start with what, in general, employer-sponsored stock options, right, are almost always, and without fail, going to be what we would consider on the secondary market call options, meaning that when you are able to exercise the option, it is going to be for a specified price in the future that you'll be able to purchase the stock, right? The flavors here sort of come down to the tax qualification and...
circumstance of the actual grant and of the shares themselves and the types of options that they are.
If you haven't gone back and listened to our episode on RSUs, restricted stock units, from a couple weeks ago, go back and have a listen.
But as we move deeper here into ISOs and MSOs, equity comp, you get a grant, you have the option to exercise.
So you could reject the grant or you could accept the grant and never do anything with it if you didn't want to.
And sometimes that happens because maybe the stock gets what we call up underwater, right? Or upside down.
And we've seen this in client cases where we've guided folks through whether to exercise or not.
But when it comes to this stock option concept, there's really just kind of like this dividing line for employer stock options that either makes these options qualified or what would be our incentive stock option or ISOs.
Or they otherwise are what we call non-qualified or non-statutory, meaning that there is no sort of rules and law that dictate how they need to function, how they're going to be taxed, etc., other than typical rules of receiving compensation and paying payroll tax and all that fun stuff.
Speaking of that, let's dig a little bit into non-qualified stock options because they're a bit more common.
They're not only – well, they may or may not be more common, but they are easier to implement, I suppose, right, on the employer side because they don't have all these different various program rules, et cetera.
When you issue an NSO – And that option is then exercised, right? The difference between the price that it was exercised at and the value of the stock at that time is going to be considered compensation, right? effectively earn that money just by exercising that option.
And so that right, first and foremost, important to understand with an NSO that is treated as effectively wage compensation, meaning you have everything from income tax to payroll tax, et cetera, to pay potentially on that exercise.
And you just see that on your regular pay stub and then on your W-2 when you get that at tax time, right? Yeah.
The rest of this transcript — segmented and speaker-labeled, so you land on the exact moment something was said
Search every transcript — by keyword, by phrase, or by meaning, across every show Radar indexes
Trends — what is surging across podcasts, measured against its own baseline
Alerts — when a name you follow appears in a newly indexed episode
No account is needed to search Radar.