(In)dependent Contractor Misclassification | Economic Policy Institute

An incentive stock option is a stock option that meets the criteria to qualify as an incentive stock option under Section of the Internal Revenue Code. Among other things, ISOs have to be granted pursuant to shareholder approved plans. ISOs are subject to tax treatment that is different, and potentially more favorable than the tax treatment accorded nonqualified or nonstatutory stock options.

You have to be an employee to receive an ISO. Thus, non-employee directors and non-employee advisors do not qualify and cannot receive ISOs. ISOs have 2 holding periods. You must hold the stock for 1 year after exercise, and 2 years after the date of option grant. Most ISO recipients fail to meet these requirements.

Can an incentive stock option be granted to an independent contractor? Can an incentive stock option be granted to a non-employee director?

Incentive stock option - Wikipedia

Instructions page Specific instructions for forms Instructions PDF version Form Form Incentive Stock Options ISOs: Use Form to report a corporation's transfer of stock pursuant to an employe… http: Notify me of follow-up comments by email. Notify me of new posts by email. Thoughts and commentary on the law of startups. Brought to you by Davis Wright Tremaine.

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About Disclaimer Privacy Policy. Incentive Stock Options ISOs Q: Holding Periods ISOs have 2 holding periods.

The benefits of ISOs? If you meet the holding periods, your gain on the ultimate sale of the stock will be capital gain. You will not have ordinary income on exercise, but the spread on exercise will be an AMT adjustment.

There is no employment tax withholding due on exercise of an ISO.

The trouble with ISOs? Employees underestimate the AMT impact, and then cannot pay the AMT when it is due. Since there is no withholding, it is easy to get in trouble. There is no deduction for the employer on an ISO for which the holding periods are met. Can an incentive stock option be granted to a part-time employee?

ISOs can only be granted to employees. Are there reporting requirements for ISO exercises? From the IRS web site: Forms and are required to be filed for certain stock transfers occurring after The filing of these information returns is required by section , as amended by the Tax Relief and Health Care Act of Public Law Use Form to report a transfer of stock by an employee where the stock was acquired pursuant to the exercise of an option described in section c.

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