Nonqualified Stock Options (NSOs) are common at both start-ups and well established companies. In fact, some companies (e.g. Nike and Spotify) allow employees to choose to receive part of their compensation in their choice of either RSUs, NSOs, or some combination.

Calculating the taxes on NSOs isn’t terribly difficult, but it’s also not the easiest thing if you aren’t familiar with NSOs, when they’re taxable, or how taxes work.

To help you estimate your taxes on NSOs, we’ve created an NSO tax calculator that will help make your NSO tax calculations at exercise easier.

You’ll find the link to access the NSO tax calculator below, followed by instructions on how to use the calculator so you can get the most out of it.

Note: If you don’t know much about NSOs, we recommend starting with our NSO Basics article and our NSO Taxation article before playing around with the calculator.

Click to Copy the NSO Tax Calculator

Preview of the NSO Tax Calculator

Here’s a screenshot of what the calculator looks like and as you can see, this NSO tax calculator was built in Google Sheets so you’ll need to download a copy for yourself if you want to make significant edits.

How to use the NSO Tax Calculator

Enter Assumptions

There are 8 assumptions that you’ll need to enter before the calculator will spit out the NSO tax results. They are circled in the image below:

As you can see, you’ll need to enter the # of granted or unvested NSOs, the # of NSOs that will be exercised, the company share price at the time of vesting, your salary or joint salary, whether you file single or joint, and lastly, the tax rates.

Please note, for the calculator to work, you must enter a value for each of the 8 assumptions for anything to calculate.

Federal Tax Rate Assumption

Determining your tax rate can be difficult if you’ve never done it before, and the way we’re doing it in this calculator is very much an estimate only. After you take into consideration different credits and deductions, you could be in a lower tax bracket, but we don’t look at any of that.

To help you determine your federal tax rate, we’ve provided a suggested federal rate based on what you enter in the assumptions, but you can use your own rate if you have a better value.

We’ve also provided tax tables on the second tab in Google sheets if you want to take a look at where the percentages are coming from.

State Tax Rate Assumption

For your state tax rate, it’d be a little much for us to pull each state’s income tax and include it. So it’s up to you to enter a percentage.

A big note here, you must enter a value even if the value is 0%.

Review Outputs of NSO Tax Calculator

Once all of the assumptions have been entered, the NSO tax calculator will provide three outputs and they are all pretty self-explanatory:

Estimated Taxes From NSOs Due at Exercise - This shows the estimated taxes you’ll owe after you’ve exercised your NSOs. It’s based on your current tax rate and there’s a possibility it will differ from what’s shown on your paystub.

Estimated Value After Taxes and Exercise Cost - This shows the value that you can expect to receive after exercising your NSOs. Assuming you don’t sell everything immediately after exercise, your value will continue to move with your company’s stock price.

High Potential for Under-withholding? - This is an important output as it will tell you if there is a chance your employer didn’t withhold enough taxes for you during your NSO Exercise. The most common form of NSO exercise is a “Sell to Cover,” which means you’re selling shares immediately after an NSO exercise to cover the cost of the exercise as well as estimated taxes.

As part of this type of exercise, most employers will withhold taxes on your exercised NSOs at a rate of 22%, but you could easily be in a higher tax bracket than that if your NSOs have gone up significantly in value.

Plan For the NSO Exercise

Once you’ve used the NSO tax calculator to determine your estimated taxes, you’ll want to make a plan to determine what you think will be the best way to exercise your NSOs.

Do you want to sell extra shares to have extra cash for taxes?
Do you want to sell shares of your company stock to use cash elsewhere?
If so, how much and what will you do with the cash?
If you don’t plan on selling shares from the exercised NSOs, how long do you plan on holding on to your shares?

We’ve written some articles to help you decide how much company stock you should keep, but no matter what you decide, you’ll want to make sure you’re putting some thought into your strategy with each NSO exercise.

Future NSO Tax Calculator Plans & Conclusion

Eventually, we will build out a more advanced version of our tax calculator but wanted to make sure there’s at least a decent basic one out in the world first - since there’s really not that much out there.

Please feel free to share the link with those who need it.

As always, reach out to team@equityftw.com with any questions.

Nonqualified Stock Option (NSO) Tax Calculator