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Stock Options & ESPP Tax Calculator

Calculate taxes on ISO, NSO, and ESPP stock compensation

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Employee Stock Purchase Plan (ESPP)

ESPP lets you buy company stock at a discount. Tax treatment depends on how long you hold the shares.

FMV on the first day of the offering period
FMV on the purchase date
Typical ESPP discount is 15%
Used for FICA calculation

Understanding Stock Options & ESPP Taxes

Employee stock compensation comes in several forms, each with different tax rules. Understanding these rules helps you maximize your after-tax income and avoid costly mistakes like unnecessary ordinary income taxation or AMT surprises.

ESPP (Employee Stock Purchase Plan)

An ESPP lets you buy company stock at a discount, typically 15% below market price. Many plans include a lookback provision that applies the discount to the lower of the stock price at the offering start or purchase date — making the effective discount even larger if the stock price has risen.

Tax treatment depends on when you sell:

  • Qualifying disposition (2+ years from offering, 1+ year from purchase): Ordinary income is limited to the lesser of the actual discount or your total gain. The rest is long-term capital gains.
  • Disqualifying disposition (sold before meeting holding periods): The full bargain element (FMV at purchase minus price paid) is ordinary income, subject to federal, state, and FICA taxes.

ISO (Incentive Stock Options)

ISOs are common at startups and offer the best tax treatment — if you can afford to wait. When you exercise ISOs, there is no regular income tax on the spread. However, the spread triggers Alternative Minimum Tax (AMT) at 26-28%.

If you hold for a qualifying disposition (2 years from grant + 1 year from exercise), your entire gain from strike to sale price is taxed as long-term capital gains (0-20%). Selling early (disqualifying) converts the spread to ordinary income.

NSO (Non-Qualified Stock Options)

NSOs have the simplest tax treatment. At exercise, the spread (FMV minus strike price) is taxed as ordinary income and reported on your W-2. This income is subject to federal income tax, state tax, and FICA (Social Security + Medicare). After exercise, any additional gain or loss from holding is taxed as capital gains.

ISO vs NSO: Key Differences

  • At exercise: ISOs have no regular tax (but AMT); NSOs have ordinary income + FICA
  • Qualifying sale: ISOs get 100% LTCG treatment; NSOs always have ordinary income at exercise
  • FICA: ISOs avoid FICA on qualifying dispositions; NSOs always pay FICA at exercise
  • Who gets them: ISOs are for employees only; NSOs can be given to contractors, advisors, board members
  • Risk: ISOs require holding through price volatility; NSOs let you sell immediately

2026 Tax Rates for Stock Compensation

Ordinary Income (NSO exercise, ESPP disqualifying, ISO disqualifying)

Taxed at your marginal federal rate (10-37%) plus state taxes plus FICA. Social Security is 6.2% on income up to $176,100 (2025). Medicare is 1.45% on all income, plus an additional 0.9% on income above $200,000.

Long-Term Capital Gains (qualifying dispositions)

0% (income under $48,350 single), 15% (most taxpayers), or 20% (income above $533,400 single). High earners may also owe 3.8% Net Investment Income Tax.

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