How to enter employer granted options

What is the best way to input employer granted options that are granted annually and exercised on a regular schedule after vesting? They are non-qualified (vs. incentive) stock options if that matters.


Dan Royer's picture

I don't know much about such options. From what I read this morning, it appears the tax treatment of them can be complex. My guess is that you'll want to use special receipts to set up the scheduled receipts and that you'll have to do the math or make assumptions on the side about the value of such receipts.

I will ask Mike if he has ideas here.

Yes, non-qualified stock options (NSO) are significantly different than incentive stock options (ISO).
The exercise of an NSO is a taxable event; the bargain element, i.e. the difference between the market price and the exercise price, is taxed as ordinary income when the option is exercised.


IGNORE THIS - I would model the exercise price as a non-taxable special expense and the bargain element as a taxable special receipt. I would then enter the market price to my regular asset account balance.

Thanks Mike. A question to help me understand how the software works. Is there a difference between what you outlined above (special expense/special receipt) and entering the bargain element as part of wages?

Yes, entering the bargain element as part of employee wages is best!
This way the NSO income will be properly subjected to both payroll and income taxes.
All of the tax categories for special expenses and special receipts apply only to income taxes, not payroll taxes.
Sorry for the confusion. I deleted some of my confusing posts.