what are the tax implications of receiving employee stock options 
while the option grant is not a taxable event taxation begins at the time of exercise the sale of acquired stock triggers another taxable event tax payable at the time of exercise is a major deterrent against early exercise of esos despite the large tax liability and loss of time value incurred through early exercise it may be justified in certain cases such as when cashflow is needed portfolio diversification is required the stock or market outlook is deteriorating or stock needs to be delivered for a hedging strategy using calls the bottom lineesos are a form of equity compensation granted by companies to their employees and executives like a regular call option an eso gives the holder the right to purchase the underlying asset the company s stock at a specified price for a finite period of time esos are not the only form of equity compensation but they are among the most common stock options are of two main types incentive stock options generally only offered to key employees and top management receive preferential tax treatment in many cases as the irs treats gains on such options as long term capital gains non qualified stock options nsos can be granted to employees at all levels of a company as well as to board members and consultants also known as non statutory stock options profits on these are considered to be ordinary income and are taxed as such eso holders should become familiar with their company s stock options plan as well as their options agreement to understand any restrictions and clauses therein employees should also become familiar with their company s code of ethics or professional conduct policies importantly you should consult your financial planner or wealth manager to gain the maximum benefit of this potentially lucrative component of compensation 