Equity Tax Estimator
Estimate federal + state tax on your stock options or equity sale. Covers ISO AMT, NSO ordinary income, RSU vesting, long-term capital gains, and QSBS.
The event
Current 409A FMV when you exercise.
Your tax rates
Top federal bracket is 37% for 2026.
0/15/20% depending on income. 3.8% NIIT is added automatically for sales.
CA top rate ~13.3%. Most states tax gain at ordinary rate (no LTCG preference).
Tax breakdown
You owe $35,100in tax on an ISO exercise that produced ZERO cash. If you can't sell some shares to cover it (e.g., your company is still private), you'll need other liquidity. Many founders exercise smaller tranches per year specifically to stay under the AMT exemption threshold.
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The four equity events and how they're taxed
Every dollar of equity you receive flows through one of these tax events. Knowing which one you're in - and the holding period that surrounds it - is the difference between owing 23% and owing 50%+ on the same dollars.
1. NSO exercise
Spread (FMV - strike) × shares is ordinary income at exercise. Federal + state ordinary rates apply (up to ~50% combined in CA). The new shares have a tax basis of FMV. From there, a future sale generates capital gain or loss on (sale price - FMV).
2. ISO exercise
No regular income tax at exercise - but the spread becomes an AMT preference item. AMT is 26% on the first ~$220K of preference items and 28% above. If you hold the shares 2+ years from grant and 1+ year from exercise, the entire gain at sale qualifies as long-term capital gain. Disqualifying disposition (selling earlier) reverts back to ordinary income treatment on the original spread.
3. RSU vest
FMV × shares vesting is ordinary income at each vesting event. Your employer typically withholds 22% federal supplemental tax, which is usually wrong (low) for high earners - plan to owe more at tax time. The shares acquired then have tax basis = FMV at vest.
4. Sale of vested shares
Gain = sale price - tax basis. If held more than 1 year, long-term capital gains rates apply: 0/15/20% federal plus 3.8% NIIT for high earners. If under 1 year, ordinary income rates. State adds on top - California taxes it all as ordinary income (no LTCG preference); Texas/FL/WA charge nothing.
QSBS (Section 1202) - the big one
Stock issued by a qualifying C-corp held more than 5 years can exclude up to $10M (or 10x basis, whichever is greater) of federal gain at sale. For successful exits, this is often the single largest tax line in a founder's life. CA, NY, NJ, PA, and a few others don't conform - state tax still applies. Track your QSBS holding period from the original issue date carefully.
Frequently asked questions
- Why is the tax different for ISOs vs NSOs?
- Non-qualified stock options (NSOs) trigger ordinary income tax on the spread (FMV - strike) at exercise - no special treatment. Incentive stock options (ISOs) get preferential treatment: no regular income tax at exercise, just AMT exposure on the spread. If you hold the shares for 2+ years from grant and 1+ year from exercise, the entire gain becomes long-term capital gains. ISOs are tax-favored but only if you can stomach AMT at exercise.
- What is AMT and why does it matter for ISOs?
- Alternative Minimum Tax is a parallel tax system that recaptures benefits from preferences like ISO exercises. When you exercise an ISO, the spread (FMV - strike × shares) becomes an AMT preference item - even though you owe nothing under regular tax. AMT rates are 26%/28%. Founders and early employees often blow up here, exercising ISOs at high FMV and owing six-figure AMT bills without selling any shares to cover it.
- What is QSBS and when do I qualify?
- Qualified Small Business Stock (Section 1202) lets shareholders exclude up to $10M (or 10x cost basis, whichever is greater) of federal gain on the sale of stock - IF: (1) the company was a C-corp with under $50M assets when the stock was issued, (2) you held the stock for at least 5 years, (3) the company is in a qualifying industry, and a few other tests. This can save federal millions on a successful exit. Note: California and a few other states don't conform - you still owe state tax on the full gain.
- What's the difference between short-term and long-term capital gains?
- Long-term: shares held more than 1 year before sale. Federal rate is 0/15/20% depending on income, plus 3.8% NIIT for high earners. Short-term: shares held 1 year or less. Taxed at your full ordinary income rate (federal up to 37%). The 1-year mark is one of the most important dates in your equity life - don't sell on day 364 of a 365-day plan.
- Why do you ask for state separately?
- States vary dramatically. California has no preferential treatment for capital gains (taxed up to 13.3% as ordinary income), doesn't conform to QSBS, and taxes ISO AMT spread fully. Texas, Florida, Washington, and several others have no state income tax. Your state matters as much as your federal bracket - especially on large equity events.
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