Stock option tax calculator: ISO vs. NSO on the same grant
Same grant, two tax codes. Enter your numbers once and see which instrument leaves more after tax.
Updated November 4, 2026 Sources and methodology
Neither column includes payroll tax. NSO spreads are also subject to Social Security and Medicare, and the 3.8% net investment income tax is left out of both.
What separates the two
Both instruments give you the right to buy stock at a fixed strike. The tax code treats them differently at exercise, not at grant:
| ISO | NSO | |
|---|---|---|
| Tax at exercise (regular) | None | Spread as wages |
| Tax at exercise (AMT) | Spread added to AMTI | None |
| Withholding | None | 22% / 37% supplemental |
| Basis for capital gain | Strike (if qualifying) | Exercise FMV |
| Rate on the gain | Long-term, 0–20% | Long-term on post-exercise gain only |
| Employer tax deduction | No | Yes |
Worked example: one grant, two outcomes
10,000 options at a $6 strike, exercised at $40, sold at $80, with $220,000 of other income, filing single. As ISOs the exercise creates $340,000 of AMT income and $93,378 of AMT; the $740,000 gain is long-term and costs $148,000. Federal tax is $241,378 and net proceeds are $498,622. As NSOs the spread is ordinary income taxed at $117,430 and the $400,000 post-exercise gain at $80,000: $197,430 of tax, $542,570 net. The NSO wins by $43,948 here because the AMT credit is not modeled; recovered over later years, part of that $93,378 comes back.
Why the ISO column is not always the winner
The ISO advantage is a deferral, not a discount. You must fund AMT in cash at exercise, and if the share price collapses afterward, that AMT was paid on a gain that no longer exists. NSOs cost more in rate terms but never produce tax on a lower sale price than the price at exercise. For a grant you expect to sell quickly, or a company whose valuation is uncertain, the NSO column frequently wins on a risk-adjusted basis even when it loses on the headline number.
What the columns mean
- Tax at exercise: cash out of pocket in the exercise year (AMT for ISO, ordinary for NSO).
- Tax at sale: capital gain tax on the disposition, plus ordinary income if the ISO is disqualified.
- Net proceeds: sale value minus strike cost minus both taxes.
- Difference: the dollar advantage of one instrument over the other, before AMT credit recovery.
Frequently asked
Is the tax the same for ISO and NSO grants?
No, and the difference can be tens of thousands of dollars on an identical grant. NSOs are taxed as ordinary income on the spread at exercise, with the rest as capital gain. ISOs are not taxed for regular purposes at exercise but add the spread to AMT income, then treat the full gain from strike to sale as long-term capital gain if the holding periods are met.
Which is cheaper if the stock doubles?
ISOs are usually cheaper at high growth because most of the gain qualifies for 0/15/20% rates. The advantage shrinks if you trip AMT and cannot recover the credit quickly, or if you sell before the holding periods and the ISO becomes a disqualifying disposition. At that point the tax treatment converges to the NSO result.
Does this calculator include AMT credit recovery?
No. AMT paid on ISO exercises becomes a minimum tax credit carried forward. It recovers against regular tax above the AMT floor in later years, which raises the ISO’s real return over time, so treat the ISO column as the conservative (worst-case timing) figure.
Sources. Code sections 421, 422, 56(b)(3) and 83. 2026 AMT parameters and capital-gain thresholds: IRS Rev. Proc. 2025-32. Supplemental withholding: IRS Publication 15. The comparison excludes the 3.8% net investment income tax, payroll taxes, and any AMT credit recovery.