If you are granted a statutory stock option under an employee stock purchase plan or an employee incentive stock option (ISO) plan, you generally do not include any amount in your gross income as a result of the grant or exercise of your option. However, you may be subject to Alternative Minimum Tax in the year you exercise an ISO. For more information, refer to the Instructions for Form 6251.

If you meet special holding period requirements, you may be allowed to treat gain or loss from the sale of the stock you receive when you exercise a statutory stock option as a capital gain or loss. However, if you do not meet the special holding period requirements, you will have to treat income from the sale as wage income. Refer to Publication 525 (PDF), Taxable and Nontaxable Income.

If you are granted a nonstatutory stock option, the amount of income to include and the time to include it depends on whether the fair market value of the option can be readily determined and whether your rights in the stock are vested when you receive it. For specific information and reporting requirements, refer to Publication 525.

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