NSO Tax Calculator
Calculate tax impact for Non-Qualified Stock Options
Disclaimer
This calculator is for educational and projection purposes only. Calculations use general assumptions based on 2026 federal tax rates and may not reflect your exact tax situation. Results should be verified with a qualified tax professional or CPA before making any financial decisions.
Input Parameters
Enter your NSO exercise details
Tax Calculation Results
Based on 2026 federal tax rates
Bargain Element (Spread)
Taxed as ordinary income at exercise
Total Tax on Exercise
New Cost Basis (Total)
FMV at exercise — used for capital gains on later sale
How NSO Taxes Work in 2026
Non-Qualified Stock Options (NSOs) are taxed differently from ISOs. When you exercise NSOs, the bargain element (FMV minus strike price) is immediately taxed as ordinary income. This income is reported on your W-2 and subject to federal income tax, FICA taxes (Social Security at 6.2% up to the wage base of $176,100 for 2026, and Medicare at 1.45%), and state income tax.
Your cost basis for the shares becomes the FMV at exercise. Any future gain or loss when you sell the shares is a capital gain/loss measured from this new basis. If you hold the shares for more than one year, the gain qualifies for long-term capital gains rates (0%, 15%, or 20%). If held for one year or less, it's taxed as short-term at ordinary income rates.
The 3.8% Net Investment Income Tax (NIIT) may also apply to capital gains if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).
Frequently Asked Questions
What taxes do I owe when I exercise NSOs?
When you exercise NSOs, the spread (FMV minus strike price) is taxed as ordinary income. This means federal income tax at your marginal rate (up to 37% in 2026), plus FICA taxes (Social Security and Medicare), plus applicable state taxes. Your employer will typically withhold taxes at exercise.
How is my cost basis calculated for NSOs?
Your cost basis per share is the FMV at the time of exercise (not the strike price). This is because the spread was already taxed as ordinary income. When you sell, you only owe capital gains tax on the difference between the sale price and FMV at exercise.
What is the difference between NSO and ISO taxation?
NSOs trigger ordinary income tax at exercise on the full spread. ISOs do not trigger regular income tax at exercise but may trigger AMT. NSOs are simpler from a tax perspective but generally result in higher total taxes. ISOs offer potentially favorable capital gains treatment if holding period requirements are met.
What are the 2026 federal income tax brackets?
For 2026, federal income tax rates range from 10% to 37%. For single filers: 10% up to $12,400; 12% up to $50,400; 22% up to $105,700; 24% up to $201,775; 32% up to $256,225; 35% up to $640,600; and 37% above that. Source: IRS Revenue Procedure 2025-32.
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