What cash and tax happens when I exercise?
At NSO exercise the spread is taxed as ordinary income, like salary. Your company usually withholds through payroll.
Try it: NSO exercise tax
The spread is taxed as ordinary income at exercise. Total cash needed includes strike plus the tax bill.
Spread (ordinary income at exercise)(FMV − strike) × shares$8,000
Tax at exercisespread × tax rate$2,800
Total cash neededstrike cost + tax$4,800
Quick check
Your NSO strike is $5. FMV at exercise is $20. You exercise 1,000 shares. What's taxed as ordinary income at exercise?
Show details
At sale, any gain above -at- is . Long-term if held more than 1 year from exercise.