1. Marisol was granted 100 NQSOs on January 12 th , five years ago. At the time

Question

1.      Marisol was granted 100 NQSOs on January 12th, five years ago. At the time of the option grant, the value of the underlying stock was $100 and the exercise price was equal to $100. If Marisol exercises the options on August 22nd of this year, when the stock is valued at $145, what are the tax consequences (per share) to Marisol?

(a)            $45 of W-2 income, $100 of short-term capital gain.

(b)            $100 of W-2 income, $45 of short-term capital gain.

(c)            $145 of W-2 income.

(d)            $45 of W-2 income.

Explanation / Answer

The difference between Exercise price and FAir value of stock option on Aug 22 is ($145-$100) $45.

As the option is Non qualified stock option , the income will be treated as ordinary income and reported in W-2

So the correct option is d . $45 of W-2 Income

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