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Stock Option Exercise Tax Calculator

Compare the tax on exercising ISOs and NSOs: what is withheld, what AMT you trigger, and exercising and holding versus selling right away.

Updated · By Niraj Kumar · 1 source

You

Filing statusFiling status
$
$

Withheld as supplemental wages before any equity.

$
%
0%15%

A flat rate on the extra income. Use 0 for Texas, Washington or Florida. California's top rates run 9.3–13.3% and it has its own AMT, which is not modelled.

Your company's stock

$

For a private company, the latest 409A value.

Incentive stock options (ISOs)

shares

$
After exercisingAfter exercising
$

For the long-term gain and AMT credit estimate. Defaults to today's price.

Non-qualified stock options (NSOs)

shares
$

Concentration

shares
$

Cash, funds, retirement accounts and home equity.

Extra tax from your equity$52,178$34,568 of it is not withheld
Equity income
$210,000
RSU value plus option spreads
Federal income tax
$17,410
AMT
$30,358
comes back as a credit in later years
Social Security & Medicare
$1,410
State
$3,000
Extra tax this year
$52,178
24.8% of your equity income
Withheld by your employer
− $17,610
Left to pay
$34,568
Raise W-4 withholding or pay estimated tax to avoid an underpayment penalty
Your bracket32%
  • Federal income tax33%
  • AMT58%
  • Social Security & Medicare3%
  • State6%

Your ISO exercise

AMT crossover
1,289 shares
$38,692 of bargain element with no AMT this year
Cash to exercise
$50,000
5,000 shares at $10.00
AMT from this exercise
$30,358
Break-even share price
$16.07
Below this, the shares are worth less than the exercise cost plus AMT
Selling this year compared with holding for a qualifying sale
Sell this yearHold, sell after a year
Sale price$40.00$40.00
Tax this year$59,495$30,358
Tax on the sale—$35,529
AMT credit used—− $30,358
Total tax$59,495$35,529
Kept after exercise cost and tax$90,505$114,471
AMT at different exercise sizes
ISOs exercised and heldBargain elementAMTCash needed
645$19,350$0$6,450
1,289$38,670$0$12,890
1,934$58,020$5,025$24,365
2,578$77,340$10,048$35,828
3,867$116,010$20,841$59,511

Concentration risk

After this year you would hold 7,000 shares, worth $280,000: 53% of your net worth. Many planners suggest keeping a single stock under 10–20%, all the more so when your paycheck depends on the same company.

What a fall in the share price would do
Share priceYour sharesShare of net worth
$40.00 today$280,00053%
$30.00 (−25%)$210,00046%
$20.00 (−50%)$140,00036%
$10.00 (−75%)$70,00022%

The $30,358 of AMT is due in April whatever the price does. At a $16.07 share price, the ISO shares are worth only what you paid to exercise them plus that tax.

How the Stock Option Exercise Tax Calculator works

AMT = max(0, TMT − regular tax), TMT = 26%/28% × (AGI + ISO spread − exemption)

This page uses the same method as the Stock Option & RSU Tax Calculator, which explains each term and assumption in full.

Worked example

A single filer on a $200,000 salary exercises and holds 5,000 ISOs with a $10 strike while the shares are worth $40, with 2,000 NSOs exercised at the same strike.

  1. 1Regular tax on the salary and NSO spread: $54,504
  2. 2The ISO bargain element is 5,000 × ($40 − $10) = $150,000, which is added to AMT income: $410,000
  3. 3Less the $90,100 exemption, the tentative minimum tax is $84,682
  4. 4AMT is the excess over regular tax: $30,178. You could have held about 1,324 ISO shares with no AMT at all
  5. 5The NSO spread is withheld on at 22% plus FICA: $14,610

The equity adds $49,358 of tax this year, and $34,748 of it is not withheld. The ISO's $30,178 of AMT comes back as a credit in later years.

Frequently asked questions

Should I exercise and hold, or exercise and sell?

Exercise and sell turns the whole spread into ordinary income now, but you have the cash and no price risk. Exercise and hold ISOs can turn the spread into a long-term gain taxed at 15 or 20% if you sell a year or more after exercise and two years after grant. The catch is the AMT now and the risk that the shares fall. The calculator shows both paths side by side.

Why is my NSO exercise withheld but my ISO exercise is not?

The NSO spread is wages, so your employer must withhold income tax, Social Security and Medicare, usually by selling shares or taking cash from you. An ISO exercise creates no wages, so nothing is withheld, even when it triggers AMT. You have to cover that yourself with estimated payments or extra withholding.

Sources

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