Free tool

ISO vs NSO tax calculator

Two option types, the same grant, very different tax. Move the sliders to see what an incentive stock option and a non-qualified stock option each cost you at exercise and at sale — including the alternative minimum tax exposure an ISO creates before you have sold anything.

Estimates only — not tax or legal advice. This tool models federal tax on a simplified fact pattern and cannot know your full return. It does not calculate alternative minimum tax, state tax, payroll tax, or the net investment income tax. Talk to a licensed tax professional before you exercise or sell.

Number of options10,000

Strike price$0.50

FMV at exercise$5.00

Usually your latest 409A valuation.

Sale price$20.00

Your rate assumptionsOrdinary income rate (%)Long-term capital gains rate (%)

Defaults are the top federal brackets. These are your inputs, not our assumptions — change them to your own bracket.

Held over 2 years from grant and over 1 year from exerciseBoth tests must pass for the ISO to get long-term treatment on the whole gain. Untick to see a disqualifying disposition.

ISO keeps $7,650 moreafter estimated federal tax, on $200,000 of proceeds and $5,000 to exercise.

ISOIncentive Stock Option

Estimated federal tax$39,000

Ordinary income at exercise: $0
AMT adjustment at exerciseAMT risk: $45,000
Ordinary income at sale: $0
Cost basis: $5,000
Capital gain at salelong-term: $195,000
Net after tax: $156,000

NSONon-qualified Stock Option

Estimated federal tax$46,650

Ordinary income at exercise: $45,000
AMT adjustment at exercise: $0
Ordinary income at sale: $0
Cost basis: $50,000
Capital gain at salelong-term: $150,000
Net after tax: $148,350

The ISO column shows $45,000 added to alternative minimum taxable income at exercise. No cash changed hands, and this page does not compute whether AMT is actually payable — that depends on the exemption, its phase-out, and the rest of your return. It is the single most common way an ISO exercise produces an unexpected bill.

What is the tax difference between ISO and NSO?

ISOs are not taxed as ordinary income at exercise, but the spread counts toward alternative minimum tax. NSOs tax that same spread as ordinary income immediately. At sale, a qualifying ISO turns the entire gain into long-term capital gain instead of salary.

NSO at exercise: the spread between strike and fair market value is ordinary income in that year, withheld like salary — owed whether or not you sold a single share.
ISO at exercise: nothing is ordinary income for regular tax, but the same spread is an alternative minimum tax adjustment. This is the AMT risk — a bill can arrive on paper gains, in a year no cash came in.
At sale: a qualifying ISO taxes the whole gain from strike to sale as long-term capital gain. Miss either holding-period test and the exercise spread reverts to ordinary income, leaving the ISO taxed like an NSO.

Why a disqualifying disposition erases the ISO advantage

The ISO benefit is conditional, and the condition is time. Two tests both have to pass: more than two years from the grant date, and more than one year from the exercise date. Pass both and the entire gain from strike to sale is long-term capital gain. Fail either one — by selling in a tender offer too early, for instance — and the spread you captured at exercise is recharacterised as ordinary income in the year of sale. Untick the holding box in the calculator and the two columns converge exactly: a disqualified ISO is an NSO with extra paperwork.

There is one asymmetry worth knowing, because simpler calculators get it wrong. On a disqualifying disposition where the shares sold for less than their value at exercise, ordinary income is capped at the gain you actually made, not the paper spread. You do not owe compensation tax on money that evaporated. Set the sale price below the FMV at exercise and the ISO column reflects that; the NSO column does not, because the NSO tax was already locked in at exercise. That gap is the phantom-income trap in one picture.

Don't leave employees guessing. Lovie's cap table software provides real-time tax modeling for your team's equity grants.

Methodology and assumptions

Last reviewed: August 17, 2026Scope: US federal tax onlyProfessional review: not yet reviewed by a named tax professional

We would rather say that plainly than imply a credential this page has not earned. A named CPA or tax attorney review is queued; until it lands, treat every figure here as arithmetic on the assumptions below and nothing more.

What the calculator does

NSO exercise: treats the spread (fair market value less strike, times shares) as ordinary income in the year of exercise and steps cost basis up to fair market value.
ISO exercise: recognises no ordinary income for regular tax, and reports the same spread as an alternative minimum tax adjustment under IRC §56(b)(3). Basis stays at the strike price.
Sale: a qualifying ISO disposition taxes strike-to-sale as long-term capital gain. A disqualifying disposition converts the exercise spread to ordinary income, capped at the realised gain, and taxes the remainder as capital gain.
Rates: applies the ordinary and long-term rates you enter. The defaults are the top federal brackets and are labelled as such rather than hidden in the code.

What it does not do

It does not calculate AMT. It reports the adjustment that feeds AMT. Whether AMT is actually payable depends on the exemption amount, its phase-out, filing status and the rest of your return — none of which this page collects.
No state or local tax, and no city tax. For many filers this is the largest omission.
No payroll tax (Social Security and Medicare) on NSO income, and no net investment income tax on gains.
No AMT credit recovered in later years, which can return part of an ISO-driven AMT payment over time.
No $100,000 ISO limit. ISOs first exercisable above $100,000 of grant-date value in one calendar year are treated as NSOs; this page does not apply that reclassification.
No 83(b) elections, early exercise, RSUs, or AMT-driven exercise planning, and no modelling of exercising across multiple tax years.
No tax-year specificity. Brackets, exemptions and thresholds change annually; the rates used are whatever you type.

This is an estimate, not advice. Nothing on this page is tax, legal, or financial advice, and no accountant–client or attorney–client relationship is created by using it. Option exercises are frequently irreversible and the tax can exceed the cash raised. Consult a licensed tax professional about your own facts before exercising or selling.

Primary sources worth reading directly: IRS Topic 427 on stock options and IRS Form 6251, the alternative minimum tax form.

Keep going

Tax is the last step. Before it, the vesting schedule simulator shows when options become exercisable in the first place, and the SAFE note conversion calculator covers what happens to the SAFEs on your cap table when a priced round lands. The dilution calculatormodels what that round does to everyone's ownership, the anti-dilution simulator shows what a down round does when protective provisions kick in, and the cap table glossary defines the terms in plain English.