{"id":1540,"date":"2019-08-13T00:00:00","date_gmt":"2019-08-13T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/employee-stock-options\/"},"modified":"2021-03-05T06:57:14","modified_gmt":"2021-03-05T06:57:14","slug":"employee-stock-options","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/employee-stock-options\/","title":{"rendered":"What are employee stock options?"},"content":{"rendered":"\n<p>Employers often offer stock options as part of your overall compensation package. This benefits both you and them\u2014when you own a piece of the company, it motivates you to help the company do well. And sometimes, your stock options could end up being <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/gap-table\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">more valuable than your salary<\/a> (especially if you join a company early and it takes off).<\/p>\n\n\n\n<p><strong>Stock options aren\u2019t actual shares<\/strong>\u2014they\u2019re the opportunity to exercise (purchase) a certain amount of company shares at an agreed-upon price, called your grant, strike, or exercise price.\u00a0<\/p>\n\n\n\n<p>The hope is you get to sell your purchased shares for more than you paid for them. However, you\u2019re never required to exercise\u2014that\u2019s why they\u2019re called options.<\/p>\n\n\n\n<h2>How stock options work: granting and vesting<\/h2>\n\n\n\n<p>Grants are how your company awards stock options. Your grant will give you all the details of your equity plan, including:<\/p>\n\n\n\n<ul><li>The <strong><a href=\"#types\">type(s) of stock options<\/a><\/strong> you get<\/li><li><strong>How many shares<\/strong> you get<\/li><li><strong>Your strike price<\/strong> (cost to purchase the shares, usually based on the fair market value of the stock at the time of your grant)<\/li><li><strong>Your vesting schedule<\/strong> (when you\u2019re allowed to exercise your shares)<\/li><\/ul>\n\n\n\n<p>The process of earning the right to exercise your options is called <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/what-is-stock-vesting\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">vesting<\/a>. Usually, you have to pass the \u201cvesting cliff\u201d\u2014when companies make you stay for a certain amount of time (usually at least a year)\u2014before you can exercise any options.<\/p>\n\n\n\n<p>You can usually only exercise vested stock options\u2014if you leave your company, your unvested options will go back into the company\u2019s option pool after your company\u2019s <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/pte-vesting\/\" target=\"_blank\">post-termination exercise period<\/a> ends. Some companies let you <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/exercising-stock-options\/#what-is-early-exercising\" target=\"_blank\">exercise options early<\/a>, though, which can have certain tax advantages depending on your situation.<\/p>\n\n\n\n<p><a id=\"types\" style=\"top:-120px;position:relative;\"><\/a><\/p>\n\n\n\n<h2>What are the different types of stock options?<\/h2>\n\n\n\n<p>There are two main types of stock options: <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/what-are-incentive-stock-options\/\" target=\"_blank\">incentive stock options (ISOs)<\/a> and <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/what-are-non-qualified-stock-options\/\" target=\"_blank\">non-qualified stock options (NSOs)<\/a>. These mainly differ by how and when they\u2019re taxed (see <a href=\"#jumpto\">How are stock options taxed<\/a> below).<\/p>\n\n\n\n<p>With NSOs, you usually have to pay taxes both when you exercise and sell. ISOs qualify for special tax treatment if you hold onto your shares for the required amount of time (at least one year after exercising and two years after your grant date), and you may only have to pay taxes when you sell your shares. However, you could have to pay <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/what-is-alternative-minimum-tax-amt\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">AMT<\/a> if you don\u2019t sell your shares in the same year you exercise them.<\/p>\n\n\n\n<h2>Do companies offer other types of stock?<\/h2>\n\n\n\n<p>Sometimes, companies offer restricted stock instead of stock options. The two most common types are <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/rsu-restricted-stock-unit\/\" target=\"_blank\">restricted stock units (RSUs)<\/a> and <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/breaking-down-rsas-and-rsus\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">restricted stock awards (RSAs)<\/a>.<\/p>\n\n\n\n<p>An RSU is a promise from your employer to give you shares of the company\u2019s stock in the future if certain restrictions are met. An RSA is like an RSU, except with RSAs you purchase the shares on the day they\u2019re granted.<\/p>\n\n\n\n<h2>Should I exercise my stock options?<\/h2>\n\n\n\n<p>There are lots of factors to think about when deciding whether to exercise your stock options. It\u2019s best to talk to a tax advisor so they can help you figure out if and when you should exercise. But in the meantime, you can <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www-staging.carta.com\/sg\/blog\/exercising-stock-options\/#what-should-i-think-about-when-deciding-whether-to-exercise\" target=\"_blank\">ask yourself these questions about exercising stock<\/a>.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p><a id=\"jumpto\" style=\"top:-120px;position:relative;\"><\/a><\/p>\n\n\n\n<h2>How are stock options taxed?<\/h2>\n\n\n\n<p>Your tax obligation can depend on what kind of stock options you have, how much they\u2019re worth, and when you exercise and sell. In general, here\u2019s what you might be able to expect:<\/p>\n\n\n\n<div class=\"wp-block-image no-shadow\"><figure class=\"aligncenter\"><img src=\"https:\/\/lh3.googleusercontent.com\/gYIB0YF6Br8wSJgR_8q8sqErbo6b8mmbsCWOKORBZGquuooTi67XLghUWn1gRExUJErtKsTKsKPkFmRik3X8djFqybWEiU0dWYtOj8gxRiIRBOvG3KKGAufeFnPfKcyulU_Zag3J\" alt=\"how are employee stock options taxed\" title=\"\"><\/figure><\/div>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p class=\"has-small-font-size has-small-font-size\">DISCLOSURE: This communication is on behalf of eShares Inc., d\/b\/a Carta Inc. (&#8220;Carta&#8221;). This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stock options aren\u2019t actual shares\u2014they\u2019re the opportunity to exercise (purchase) a certain amount of company shares at an agreed-upon price. Learn more.<\/p>\n","protected":false},"author":66,"featured_media":2113,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[9,10],"tags":[83,105,84],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1540"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/66"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=1540"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1540\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/2113"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=1540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=1540"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=1540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}