Equity Compensation Tax Treatment 2027 Calculator
Compare equity comp tax treatment 2027 — ISO, NSO, RSU, ESPP. Each taxed differently at grant, exercise, sale. Critical for option/RSU planning.
ISO (Incentive Stock Options)
No tax at exercise (regular). BUT spread between strike & FMV is AMT income. Sell after holding 2yr+ grant AND 1yr+ exercise = LTCG on full gain. Otherwise NSO-like treatment.
NSO (Non-Qualified Stock Options)
At exercise: ordinary income on spread (strike to FMV). At sale: capital gain on spread (FMV to sale). Two taxable events. Simple but more total tax.
RSU (Restricted Stock Units)
At vest: ordinary income on full FMV. Employer withholds shares for tax. At sale: cap gain on appreciation since vest. Most popular tech equity.
ESPP (Employee Stock Purchase Plan)
Buy at 15% discount via payroll. Discount = ordinary income at purchase. Hold 2 years from offer + 1 year from purchase = LTCG on remainder.
Source: irs.gov Publication 525 Equity Compensation. Last updated: May 2026.
Frequently Asked Questions
AMT scary for ISO?
Can hit hard with big ISO exercises. Mitigate: exercise smaller amounts annually below AMT threshold. Track AMT credit (recovered in later non-AMT years).
83(b) election?
For restricted stock (early exercise of options or grants). Elect to pay tax NOW at low FMV. Future appreciation = capital gains. File within 30 days of grant.
Disqualifying disposition?
Selling ISO before required holding period. Treated like NSO. Ordinary income on entire spread. Loses tax benefit. Avoid unless cash needed.