ISO / NSO Exercise Tax Calculator
Estimate the tax to exercise stock options: NSO ordinary income, or ISO AMT exposure, from strike, FMV, and shares. Runs in your browser.
ISO exercise — estimated tax
- Cost to exercise
- $20,000
- Regular income tax at exercise
- $0
- AMT preference item
- $100,000
- Estimated AMT exposure
- $26,000
Bargain element = (FMV − strike) × shares. NSO: the bargain element is ordinary income at exercise (plus payroll tax, not shown). ISO: no regular tax at exercise, but the bargain element is an AMT preference item that can trigger Alternative Minimum Tax. This AMT figure is a rough estimate — it ignores the AMT exemption, exemption phaseout, your other income, and the 26%/28% threshold, so actual AMT is often lower. ISO/AMT is genuinely complex. Estimate only — not tax advice; consult a CPA before exercising.
About this tool
Exercising stock options can create a tax bill long before you sell a single share, and the rules differ sharply by option type. This calculator estimates both. The key quantity is the bargain element — the fair market value minus the strike price, times the number of shares. For non-qualified stock options (NSOs), that bargain element is taxed as ordinary income at exercise, so you owe tax (and payroll tax) on a paper gain immediately. For incentive stock options (ISOs), there is no regular income tax at exercise, but the bargain element is a preference item for the Alternative Minimum Tax (AMT) and can trigger a surprise AMT bill — the classic trap for employees who exercise and hold. The tool shows the cash needed to exercise plus the estimated tax. A crucial honesty note: the ISO/AMT figure here is a rough approximation that ignores the AMT exemption, its phaseout, your other income, and the 26%/28% bracket boundary, so real AMT is often lower and is genuinely complex. Treat this as a directional estimate, not a filing number — consult a CPA before exercising. Everything runs in your browser.
How to use it
- Enter your strike price, the current fair market value (FMV), and shares to exercise.
- Choose ISO or NSO.
- Set your ordinary tax rate (for NSOs) and AMT rate (for ISOs).
- Read the cost to exercise and the estimated tax — then consult a CPA.
Frequently asked questions
- What is the bargain element?
- The built-in gain at exercise: (FMV − strike price) × number of shares. It is the basis for taxation — ordinary income for NSOs, and an AMT preference item for ISOs. If FMV equals strike, there is no bargain element and no tax at exercise.
- How are NSOs taxed at exercise?
- The bargain element is ordinary income in the year you exercise, subject to income tax and payroll taxes, withheld by your employer. You owe this even if you do not sell the shares, which is why exercising NSOs at a high FMV can mean a large immediate bill.
- How are ISOs taxed at exercise?
- No regular income tax at exercise — but the bargain element is added to income for the Alternative Minimum Tax (AMT). If it pushes you into AMT, you can owe tax on a gain you have not realized. Holding ISOs long enough also qualifies a later sale for favorable long-term capital gains.
- Why is the AMT estimate only rough?
- Real AMT depends on the AMT exemption (and its phaseout at high income), your total income, and the 26% vs 28% rate threshold — none of which a single bargain-element figure captures. This tool multiplies the preference by a flat AMT rate, which typically overstates the actual AMT. Use proper tax software or a CPA for the real number.
- Can I avoid the ISO AMT hit?
- Strategies include exercising fewer shares per year to stay under the AMT threshold, exercising early when FMV is close to strike (small bargain element), or doing a same-day sale (which converts ISO treatment to ordinary income but avoids AMT). These have trade-offs — get professional advice.
- Is this tax advice?
- No. Option taxation, especially ISO/AMT, is complex and situation-specific. This is a directional estimate only — consult a CPA or tax advisor before exercising.