Equity Vesting Tax Estimator
Estimate startup equity value and tax impact (ISO/NSO/RSU). Enter values for instant results with step-by-step formulas.
Formula
Net = (FMV - Strike) × Shares - Tax
Your profit is the spread between Fair Market Value (FMV) and Strike Price. However, taxes take a huge bite. RSUs/NSOs are taxed as salary (high rate). ISOs offer tax benefits but trigger AMT (Alternative Minimum Tax) risks.
Worked Examples
Example 1: RSU Grant
Problem:1000 shares, $0 strike, $50 FMV
Solution:$50k value. Taxed as income (~35%). Net ~$32.5k.
Result:$32.5k Net
Example 2: Early ISO Exercise
Problem:1000 shares, $1 strike, $5 FMV
Solution:Cost $1k. No immediate tax. Hold 1 year for lower Cap Gains tax.
Result:$4k Paper Gain (Untaxed)
Example 3: Underwater Option
Problem:Strike $10, FMV $5
Solution:Spread is negative. Do not exercise.
Result:$0 Value
Frequently Asked Questions
What is an RSU?
Restricted Stock Unit. It's not an option; it's a share given to you. It counts as income the day it vests, so you owe tax immediately (often by selling some shares to cover it).
What is Vesting?
You earn your shares over time (usually 4 years). If you leave after 1 year, you keep 25%. If you leave before 1 year (Cliff), you get nothing.
Should I exercise early?
Early exercising (buying shares before they vest) can start your tax clock sooner (83b election), potentially saving huge taxes later. High risk if company fails.
Background & Theory
The Tax Triangle
- Income Tax (Highest): Up to 37% federal + state. Applies to Salary, Bonuses, RSU vesting, NSO exercise.
- Short Term Cap Gains: Same as Income Tax. Applies if you sell shares held <1 year.
- Long Term Cap Gains (Lowest): ~15-20%. Applies if you hold shares >1 year. The goal of ISOs.
The 83(b) Election
If you early exercise, you can file an 83(b) with the IRS. This tells them: "Tax me now on the value." Since the value is low at the start, tax is $0. All future growth is Capital Gains. Miss the 30-day filing deadline, and you lose this benefit forever.
Dilution
Your 10,000 shares might be 1% of the company today. After Series B, C, and D funding, it might be 0.5%. However, if the pie gets bigger, your smaller slice is worth more.
History
The Dot Com Boom
In the 1990s, stock options made secretaries millionaires. Microsoft and Netscape used options to attract talent they couldn't afford to pay in cash. It became the standard Silicon Valley comp model.
The 2000s RSU Shift
After the dot-com crash, options became worthless (underwater). Big tech (Microsoft, Amazon) shifted to RSUs—giving actual shares instead of options. Even if the stock drops, RSUs still have value.
The Golden Handcuffs
Today, equity is a key retention tool. Companies use "refreshers" (new grants) to stack vesting schedules, making it expensive for employees to leave. The "90-day exercise window" remains a controversial trap for employees leaving startups.
Common Misconceptions
- Myth: "Options are free money." Reality: They cost money to buy (exercise) and trigger taxes. Many employees can't afford to buy their own equity.
- Myth: "I pay tax when I sell." Reality: With NSOs and RSUs, you pay tax when you get them, even if you can't sell them yet.