Non-qualified Stock Options (NSO)

Non-qualified Stock Options (NSOs) are stock options that, when exercised, result in ordinary income under US tax laws on the difference, calculated on the exercise date, between the exercise price and the fair market value of the underlying shares.

They are called “non-qualified” because they don’t meet all the requirements under the United States Internal Revenue Code for qualified incentive stock options (ISOs). For details on the differences between NSOs and ISOs, please see this article.