NSO exercise calculator

Estimate the spread, the tax, and the cash you actually need to exercise, in four numbers you can do on a napkin.

NSOs · Forms & reporting

What does it actually cost to exercise your NSOs? Two numbers, not one: the cash to buy the shares, and the tax on the spread. Most people budget for the first and get ambushed by the second. Here’s how to size both before you click, with arithmetic simple enough to do on a napkin.

You don’t need software for this. You need four inputs and four lines of math.

The four inputs

Shares you'll exercise

How many options you plan to exercise in this batch. Call it N.

Strike price

What you pay per share to exercise, set in your grant. Call it K.

Fair market value today

The share value on exercise day. For a public company it’s the market price; for a private one it’s the 409A valuation. Call it V.

Your marginal tax rate

The rate your highest dollars get taxed at, federal plus state, since the spread stacks on top of your salary. Call it R.

The four lines of math

Cash to buy the shares

Strike times shares: K x N. This is what leaves your account to exercise, win or lose.

The spread (your ordinary income)

(V minus K) x N. This is the bargain element, and it lands on your W-2 as wages in the year you exercise.

The real tax on the spread

Spread times your marginal rate: (V minus K) x N x R. This is roughly what you owe, before payroll taxes.

The gap your withholding won't cover

Your employer withholds the spread at the flat supplemental rate, which for most equity holders is below their real rate. The gap is the spread times the difference between your marginal rate and the withholding rate, and it’s the number that surprises people in April.

2026 withholding rate

Federal supplemental wages are withheld at a flat 22% 2026 up to $1,000,000 of cumulative supplemental wages in the year, then 37% above that [IRS Pub 15]. Your state may withhold its own supplemental rate on top. In our two hardest-hit states, that means California at 10.23% 2026 on stock options when paid separately, and New York at 11.70% 2026 plus another 4.25% 2026 for New York City. Other states set their own rate, so confirm yours before relying on the gap figure.

Don’t forget the payroll tax

The spread is wages, so Social Security and Medicare apply too, the same as on a bonus. In a big exercise year that adds real money to the bill.

2026 payroll figures

For 2026, Social Security (6.2%) applies up to a wage base of $184,500 2026, Medicare (1.45%) applies to all wages, and an Additional Medicare Tax of 0.9% 2026 kicks in above $200,000 2026 single or $250,000 2026 married filing jointly. Where your other wages already sit against these limits changes how much the spread adds, so check your year-to-date pay stub.

A worked pass

Exercise 5,000 options, $4 strike, stock at $24, marginal rate 35%. Cash to buy: $4 x 5,000 = $20,000. Spread: $20 x 5,000 = $100,000 of ordinary income. Real tax at 35%: $35,000. If the flat supplemental rate above covered $22,000 of that, you’re left with roughly a $13,000 gap to fund yourself, before payroll tax. So the true cost of this exercise isn’t the $20,000 strike. It’s closer to $55,000 once the tax lands.

The number that matters is total cash out the door: strike plus the full tax, not strike plus withholding. Budget for the real tax and set the gap aside the day you exercise. If you want to see the same math carried all the way through to a later sale, walk through a full worked example.

What this means for you

Sizing an NSO exercise is four inputs and four lines: cash for the strike, the spread, the real tax on it, and the gap your flat withholding leaves behind. Run it before you exercise, not after, and budget for the whole bill, not the withheld slice. If the spread is large enough that the bracket math really moves, the smarter version is to spread the exercise across years, and that’s worth planning with someone first.

Still have questions about your equity?

Join the community to ask directly, or take the two-minute fit check to see if a planning call makes sense.

Join the community Talk to an advisor