Stock Options Tax Calculator (ISO vs NSO)

Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are taxed on very different schedules, and seeing the two side by side helps employees decide how to handle their equity compensation. ISOs can qualify for preferential tax treatment but carry strings attached, whereas NSOs are simply taxed as ordinary income the moment you exercise.

For each option type, the tool works out the tax at the rates you enter: for an NSO, income tax plus Social Security and Medicare (7.65%) on the spread at exercise; for an ISO, the long-term capital gains tax at sale and the most Alternative Minimum Tax (AMT) the spread could add, 28% before the AMT exemption, which is often much more than the AMT you would actually owe. Exercising an ISO can pull the spread into AMT, yet that spread escapes regular income tax until you actually sell the shares. An NSO works the opposite way, generating an ordinary income tax bill right at exercise on the gap between the exercise price and fair market value.

One trap worth avoiding is exercising ISOs late in the year without modeling the AMT first, which has a way of producing a tax bill nobody planned for. Note too that ISO advantages disappear in a disqualifying disposition, where shares are sold within two years of grant or one year of exercise. On the brighter side, AMT paid when you exercise ISOs may come back as a credit in later years.