Stock Options Calculator

Stock option taxation depends entirely on the option type and how long you hold the shares. We compute four distinct scenarios:

NSO (Non-Qualified Stock Options)

At exercise, the spread (FMV − strike) × shares is treated as ordinary W-2 income. Your employer withholds federal, state, FICA, and Medicare at supplemental rates, but the actual tax depends on your full-year marginal bracket. If you sell later above the FMV at exercise, that additional appreciation is a capital gain — short-term (ordinary) if held under a year, long-term if held over a year.

NSO ordinary income = (FMV − strike) × shares
NSO additional gain = (sale price − FMV at exercise) × shares
                       → STCG if held <1yr, LTCG if held ≥1yr

ISO Qualifying Disposition

If you hold the shares at least 1 year after exercise AND at least 2 years after the grant date, the entire profit (sale price − strike) is taxed as long-term capital gains. There is no ordinary income tax on the spread. This is the most favorable tax treatment available to employees.

ISO qualifying LTCG = (sale price − strike) × shares
                      taxed at 0% / 15% / 20% federal LTCG rates

ISO Disqualifying Disposition

If you sell ISO shares before meeting both holding periods, the IRS reclassifies the spread as ordinary income, exactly like an NSO. Any further appreciation above FMV is short-term or long-term capital gain depending on how long you held.

AMT (Alternative Minimum Tax) — the ISO Trap

Here is the catch that ruins many ISO exercises: in the year you exercise ISOs (even without selling), the spread is added to your alternative minimum taxable income (AMTI). If AMT exceeds your regular tax, you owe AMT in April — on phantom income from shares you may still hold.

AMTI ≈ ordinary income + ISO spread
AMT exemption (2026 single) = $88,100 (phases out above $626,350)
AMT rate = 26% on AMTI ≤ $239,100; 28% above
AMT owed = max(0, AMT tentative − regular federal tax)

The AMT credit you generate can be recovered in future years when your regular tax exceeds your AMT, but in practice that recovery can take a decade or never happen. A worker who exercises $500,000 of ISO spread in a year and holds the shares can easily owe $100,000+ in AMT — payable in cash by April 15.

Bracket stacking

We add option income on top of your other ordinary income to find the correct marginal bracket, then compute federal tax on the slice attributable to the options. Long-term capital gains stack on top of all ordinary income and use the 0% / 15% / 20% schedule. The calculator does not model state taxes, Net Investment Income Tax (3.8% NIIT on high-income LTCG), or AMT credit carryforwards — consult a CPA before exercising large blocks.