My question is about my stock options and the tax implications of a sale.

I was given X number of non-qualified stock options when I was hired
at my company at a strike price of Y. I did not excercise and now the
stock price has risen to W. I would now like to sell to cover my
vested stock.

I know I will be paying short term capital gain taxes on the stock I
sell, but because I have NQSOs, I also have to pay short term capital
gain tax rates on the profit (W-Y) from the stocks I am excercising in
the cover.

My question is this: If I hold those covered stocks for two years and
then sell, will I get a refund of that extra 10% tax that was taken
out upon my excercise? Or will I only get the long term capital gains
tax break on the profit accrued between the excercise date and the
sell date?

Please let me know if you need any more clarification.

At the moment you exercise NQSOs, the difference between the grant
price Y and the exercise price W times the number of shares you
exercise is considered compensation, regular W-2 income, and will be
taxed at ordinary income rates.

Regardless of how long you hold the shares, you don't have any
opportunity to convert the ordinary income (compensation) you realized
upon exercise to a long term capital gain.

Your basis in those shares is the exercise price (W).  Your future
capital gain or loss is based on the difference between your basis (W)
and the ultimate sales price.  The holding period on those shares
begins to toll on the date you exercised.  So, if as in your example
you held the shares for two years, you would be eligible for long term
capital gain rates (assuming they don't change the law between now and
then).

The world of stock options can be rather complicated, hope this helps!

happytobeme

Thank you so much, that is really helpful! If you are a researcher,
please use that to answer the question and receive my bounty of $7
whole dollars. :) Don't spend it all in one place.

Actually, one last little thing...so the gain is considered ordinary
income, however I am taxed on it as soon as I excercise. So when I am
doing my taxes for that calendar year, I should not have to pay any
taxes on that gain, correct? But will I likely have to pay more tax on
my actual work wages if I was bumped into the next tax bracket by my
excercise gains?