ISO & NSO

You can grant both non-qualified stock options (NSO) and incentive stock-options (ISO) to local residents employed as regular employees in the United States.

The tax treatment will vary between these two common stock options rewards:

• With NSOs, the grantees will have to pay ordinary income taxes, subject to withholding and payroll taxes, at the time they’ve decided to exercise the stock options and capital gains taxes when they decide to sell the underlying shares if the shares are sold at a gain.
• With ISOs, the grantees should only need to pay taxes at the time they’ve decided to sell the underlying shares, and it could be taxed as a mix of ordinary income and capital gains rates or entirely at capital gains rates. Naturally, there are some conditions that need to be fulfilled for this treatment to apply.

ISOs can’t be granted to contractors, directors or self-employed personnel.