Stock Options Tax Calculator
Calculate federal tax on ISO and NSO stock options from strike price and fair market value.
Returns ordinary income, AMT exposure, and net after-tax profit.
Stock options tax liability depends critically on the option type: Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs/NQSOs) are taxed very differently. Getting this wrong is one of the most common and costly tax mistakes in compensation planning.
NSO (Non-Qualified Stock Option) tax at exercise: Ordinary Income = (Fair Market Value at Exercise − Strike Price) × Shares Exercised Tax Owed = Ordinary Income × Marginal Income Tax Rate
ISO (Incentive Stock Option) tax at exercise:
- No regular income tax at exercise
- The spread (FMV − Strike Price) may trigger Alternative Minimum Tax (AMT)
- AMT Preference Item = (FMV at Exercise − Strike Price) × Shares
Capital gains tax on sale (both types): Capital Gain = (Sale Price − Tax Basis) × Shares Sold
Where:
- Strike Price (also called exercise price) — price at which you can buy the shares, set at grant date
- Fair Market Value (FMV) — current market price at time of exercise
- Tax Basis for NSOs — FMV at exercise (the income already taxed)
- Tax Basis for ISOs — strike price (for regular tax) or FMV at exercise (for AMT)
- Short-term capital gains — held < 1 year: taxed as ordinary income (up to 37%)
- Long-term capital gains — held > 1 year: taxed at 0%, 15%, or 20%
Worked example — NSO: Strike price: $10/share. FMV at exercise: $40/share. Exercise 1,000 shares. Marginal rate: 32%.
- Ordinary income recognized: ($40 − $10) × 1,000 = $30,000
- Federal income tax owed: $30,000 × 32% = $9,600
- Plus FICA taxes: ~15.3% on $30,000 (if self-employed) or 7.65% if employed = $2,295
- Total tax at exercise: ~$11,895 on a $30,000 paper gain
If you hold the shares and sell two years later at $60/share:
- Additional capital gain: ($60 − $40) × 1,000 = $20,000 → long-term rate 15% = $3,000 more tax