an incentive stock option iso gives an employee the right to buy shares of company stock at a discounted price the profit on qualified isos is usually taxed at the capital gains rate not the higher rate for ordinary income non qualified stock options nsos are taxed as ordinary income generally isos are awarded only to top management and highly valued employees isos are also called statutory or qualified stock options 1
understanding incentive stock options isos incentive or statutory stock options are offered by some companies to encourage employees to remain with them long term and contribute to their growth and development isos are usually issued by publicly traded companies or private companies planning to go public they require a plan document that clearly outlines how many options are to be given to specific employees those employees must exercise their options within 10 years of receiving them 2options can be used to augment salaries or as a reward instead of a traditional salary raise stock options like other benefits can be used to attract talent especially if the company cannot afford to pay competitive base salaries 