NSO Tax Spread Calculator
Exercising Non-Qualified Stock Options (NSO) triggers ordinary income tax on the spread between strike and FMV. Unlike ISO, no AMT but full ordinary rates apply. Calculate your NSO tax and net shares.
| Bargain element (FMV − strike) × shares | — |
| Federal ordinary tax (your marginal bracket) | — |
| FICA — Social Security (up to $176,100 wage base) | — |
| FICA — Medicare 1.45% + Additional 0.9% | — |
| State income tax | — |
| Total tax owed | — |
| Net shares (if sold to cover tax) | — |
Non-Qualified Stock Options (NSO) — the most common type of employee stock option — trigger ordinary income tax on the spread between strike price and Fair Market Value at exercise. Unlike Incentive Stock Options (ISO), there's no AMT. But you pay full ordinary rates immediately (32-37% for high earners) plus FICA + state tax. Future capital gains on the shares qualify for long-term treatment if held 12+ months.
How NSO Tax Works
At exercise: spread (FMV − strike) × shares is ordinary income, reported on W-2 box 1. Subject to federal ordinary tax (10-37%), FICA (Social Security 6.2% + Medicare 1.45% + Additional Medicare 0.9% over thresholds), and state ordinary tax. Employer typically withholds at 22% supplemental — high earners are under-withheld.
NSO vs ISO
NSO: ordinary tax on spread at exercise. No AMT. Future gains LTCG if held 12+ months. ISO: no regular tax on spread at exercise, but spread is AMT preference. Defers tax. Full gain (strike to sale) qualifies for LTCG if held 2 years from grant + 1 year from exercise. For employees planning to sell within 1-2 years of exercise, NSO is often simpler.
Cashless vs Cash Exercise
Cashless exercise: broker exercises and immediately sells to fund the strike cost + tax. Net cash to you. Sell-to-cover: exercise + sell only enough shares to cover tax, keep the rest. Cash exercise + hold: pay strike out-of-pocket, owe ordinary tax, hold for LTCG. Highest upside but requires cash to fund tax. Best when stock has long runway.
Last updated May 2026. Sources: IRS Pub 525 Taxable Income, Cornell IRC §83.