When I retired I exercised non-qualified options and received proceeds from the company. Should this be handled as a stock sale, self-employment income or something else?

[Gary-O]

As I was retired when I exercised the option I did not receive a W-2.  However, I first advised the company that I would need a 1099-B to report the proceeds as a stock sale.  Subsequently, I received contradictory info indicating I needed to report it as profit from business on Schedule C so I requested a 1099-MISC from the company as well.  The latter makes no sense to me as I am retired and do not operate a business.  

[DDollar · Accepted solution]

If you're an employee (or were an employee when you received the option), the company was required to withhold when you exercised your option.  If that was the case, you should contact your former employer and have them issue you a W-2. 

If you weren't an employee when you received the options withholding doesn't apply. The income should be reported to you on Form 1099-MISC instead of Form W-2. This is compensation for services, and would be reported on Schedule C. In general this income will be subject to the self-employment tax as well as federal and state income tax.

[asignato]

My wife was an employee when she received the options, but was no longer with the company when she exercised them (2015).   However the company still submitted 1099-MISC instead of W-2 form.   The company is not based on the US.  What leverage do I have to request the company with withdraw 1099-MISC and filing W-2 instead?  Is there a section in 2015 tax code that requires company to file W-2 based on the criteria that the options were granted to an employee?  Even if these options were exercised by non-employee.

[DDollar]

It sounds like the company got it wrong.  According to a KPMG article on the subject:

"The taxable spread on the exercise of an NSO by an employee (or at vesting if the stock received on exercise remains subject to a SROF) is considered wages subject to employment tax withholding and must be reported by the employer on Form W-2, Wage and Tax Statement. The employment tax withholding and Form W- 2 reporting requirements continue to apply on exercise of an NSO even when the employee option-holder terminates employment with the company prior to exercise of the option.  Option exercises by service providers other than employees (e.g.,outside board of directors and independent contractors) are reported on Form 1099-MISC (Box 7) and withholding is typically not required."

As for what leverage you have with the Company, that's beyond the scope of Answer Xchange.  You can contact them and point out their error, or you could contact the IRS.

[marketergraham]

When you say "received" are you talking about the grant or the exercise?