Non-Qualified Stock Option Law and Legal Definition
Non-Qualified Stock Option is a stock option that does not meet the incentive stock option requirement under US tax law. The spread is taxed as ordinary income.
Non-qualified stock options result in additional taxable income to the recipient at the time that they are exercised, the amount being the difference between the exercise price and the market value on that date.
Non-qualified stock options are frequently preferred by employers because the issuer is allowed to take a tax deduction equal to the amount the recipient is required to include in his or her income.