NSO Exercise Cost Calculator

How is this different from exercising an incentive stock option?

Almost completely. An incentive stock option exercise produces no regular taxable income, no withholding and no payroll tax — the spread is invisible to your regular return and visible only to the alternative minimum tax. Nothing has to be paid to anyone on the day except the strike price.

An NSO exercise is the opposite: fully taxable immediately, withheld at source, subject to Social Security and Medicare, and payable before the shares are issued. The trade-off is that an NSO has no holding-period requirements, no AMT exposure and no risk of a disqualifying disposition. Neither is strictly better, but they demand different amounts of cash at very different times.

Why is the payroll tax so much smaller than I expected?

Because Social Security stops at the wage base — $184,500 for 2026 — and most people exercising a meaningful option grant have already reached it through salary. Once past it, the only payroll tax left on the spread is Medicare at 1.45% plus the 0.9% additional Medicare surcharge above $200,000. That is 2.35%, not 7.65%.

The calculator computes this incrementally rather than applying a flat rate, so a salary that sits *below* the wage base produces a partial Social Security charge on the portion of the spread that carries you across it. Set the salary to $120,000 and then to $300,000 and watch the payroll figure move in a way no flat percentage reproduces.

My options expire 90 days after I leave. What are my options?

This is the situation that ruins people, and there are only four ways out. Find the cash. Exercise a smaller number of shares — the calculator is linear in share count, so exercise only what you can fund. Let them expire and walk away, which is genuinely the right answer for an under-water or marginal grant. Or use a third party who funds the exercise in return for a share of the eventual upside.

Be extremely careful with the fourth. Exercise-financing arrangements are typically non-recourse loans priced against an outcome nobody can predict, and the fees are large. Read the terms with a professional before signing, and price the deal against simply exercising fewer shares. Some companies will also extend the exercise window on request — ask, because the worst answer is no.

Can I exercise just some of my options?

Almost always, yes, and it is the most underused answer to an affordability problem. Everything on this page scales linearly with the share count, so halving the shares halves both the exercise cost and the tax.

Reduce the share count in the calculator until the cash needed matches what you can actually fund. Exercising a third of a grant you believe in is strictly better than exercising none of it because the full amount was out of reach — and at a private company, a partial exercise also limits how much you have riding on a single illiquid outcome.

The company said it will do a "sell to cover". What does that mean?

A broker exercises the whole grant, immediately sells enough shares to pay the strike price and all the withholding, and delivers the remainder to you. Nothing leaves your bank account. The shares to sell to cover figure above is that number, and shares you would keep is what would remain.

Because the shares are sold moments after exercise, their basis equals the price they sell at, so the sale itself generates essentially no additional tax. This is only available where a market exists — at a public company, or at a private one running a tender offer. If your employer is private and not running one, this option does not exist for you no matter what the figure says.

Will I still owe money in April after all this withholding?

Usually yes. The 22% flat rate is a withholding convention, not a calculation of your liability, and anyone whose income puts them in the 32% or 35% bracket is under-withheld by roughly a third of the spread. The still owed at filing figure is that gap.

The exception is a spread over $1,000,000, where the mandatory 37% rate on the excess is close to or above the true marginal rate and the gap narrows or reverses. Consider making an estimated payment in the quarter you exercise rather than waiting — it is the same money, and it avoids an underpayment penalty on top.

What is my cost basis afterwards, and why does it matter?

Your basis is the full fair market value on the exercise date — the strike you paid plus the spread you were taxed on. The cost basis per share figure above is that number. Any later gain or loss is measured from it.

This matters because brokers routinely report only the strike price on Form 1099-B, which would make you pay tax a second time on the spread you already declared as wages. The correction goes on Form 8949 using your real basis. Check the 1099-B against the figure above before filing.

Should I exercise early, while the valuation is still low?

The tax argument for it is strong and simple: the spread is what gets taxed, so exercising when the strike and the valuation are close produces almost no spread and almost no tax. Wait until the company has grown and the same shares cost many times more to acquire.

The argument against is that you are putting real money into an illiquid asset that may become worthless, and you cannot get the strike price back. The tax saving is certain; the outcome is not. Decide how much you are prepared to lose entirely, then use the calculator to find the share count that fits it.

Is anything I enter here sent anywhere?

No. The calculation runs entirely in your browser, in a static JavaScript file, with no network request at any point. Your salary, strike price and valuation never leave your device, and there is no account, no email gate and nothing stored between visits.