WHAT FEDERAL INCOME TAX LIABILITY RESULTS UPON THE EXERCISE OF A NON-QUALIFIED OPTION?
Normally, you will recognize ordinary income in the year in which the non-qualified option is exercised in an amount equal to the excess of (i) the fair market value of the purchased shares on the exercise date over (ii) the exercise price paid for those shares, and the Corporation will have to collect all the applicable withholding taxes with respect to such income. If the shares you purchase under a non-qualified option are unvested and subject to the Corporation’s right to repurchase those shares at the original exercise price upon your termination of employment prior to vesting in such shares, then you will not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when the Corporation’s repurchase rights lapse, an amount equal to the excess of (i) the fair market value of the shares on the date such shares vest over (ii) the exercise price paid for the shares. If you purchase unvested shares subject to the Corporation’s repurchase r
