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My situation is pretty simple, I am a European citizen working for a US based company. I would like to exercise my vested stock options and hold the stock long term since both the exercise price and fair market value are very low at the moment. The idea is to avoid future gain taxes if the fmv is higher when/if I leave the company.

Will this make me taxable in the US or involve me with the IRS or USA tax system in any way? I am essentially just looking to exercise and hold onto the stock as a "what if", but I would like to minimize the amount of paperwork or other issues I could find out over time.

Thank you

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  • how much can you sell the options for? Is it cheaper to sell the options and buy the stock than it is to buy the stock at the strike?
    – D Stanley
    Commented Nov 18, 2021 at 16:55
  • The difference between the exercise/strike price and the current fmv may be taxable in your country but should not have any US tax implications.
    – Tiberia
    Commented Dec 18, 2021 at 22:54
  • You need to specify where you reside (the tag suggests you do not reside in the US but that's a crucial piece of information that's missing from the body of the question and the specific country might have a bearing on the answer through bilateral tax agreements). “European citizen” is both vague and mostly irrelevant.
    – Relaxed
    Commented Jan 8 at 8:14

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Exercising options is not a taxable event in the US. The strike will be the cost basis of the stock that you buy, so the profit when you sell the stock will be price - strike, and that will be the profit on which you are taxed.

However, it's almost always cheaper to sell the option (which will be taxable) and buy the stock at market price. The option should be worth more than the savings you get by buying the stock at the strike (spot - strike). You'll pay tax this year on the sale of the option if the option is worth more than it was when it vested, but only on the gain, not the full amount that you get. You should have already been taxed on the vested value of the option through a withholding.

For example, if the options were worth $1 per share when they vested and you received 10 contracts (1,000 shares), you would have been taxed on $1,000 of income. IF they are now worth $1.50 and you sell them, you'll be taxed on $0.50 per share or $500 of income. If they're worth less than when they vested, then you have a loss and can deduct that against other investment gains, or defer them until you do have investment gains.

Note: This applies to US taxes only - it does not include any tax ramification from your home country (if any).

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  • Given the phrase "fair market value" and the fact that these are employee options, it sounds to me like these are private shares not available on the public market
    – Tiberia
    Commented Dec 18, 2021 at 22:53
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    "Exercising options is not a taxable event in the US" - For US residents, there may be tax implications for employee stock options if the fair market value at the time of exercise is higher than the strike/exercise price
    – Tiberia
    Commented Dec 18, 2021 at 22:55
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I am an employee of a UK company whose parent company is in the UK. I have bought shares under an employee sharesave scheme. These are plublicly traded US shares.

So far, I have had to fill in W8-BEN forms from time to time. These declare that I am not a US citizen or resident. My share dividends are taxable in the US, but I haven't had to deal with that. Other than those forms, I haven't had to deal with US taxation.

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