Equity taxes: ISOs, NSOs, 83(b), AMT and QSBS

Equity compensation is taxed by events: grant, vest, exercise, sale — and which events matter depends on whether you hold NSOs, ISOs, restricted stock or RSUs. The same $200k "gain on paper" can produce a manageable capital-gains bill, a surprise AMT invoice you cannot fund, or a near-zero federal tax outcome under QSBS. None of this is legal or tax advice; it is the map so you know when to hire a professional before you click Exercise in Carta.

For the economics of offers and strikes, start with employee equity. This is the tax layer.

Concepts in this section

Read them in order. QSBS only helps if you actually hold stock, which is why 83(b) and exercise timing come first.

RSUs usually create ordinary income at vest (private companies sometimes add a liquidity condition so tax aligns with sellability). There is no strike to pay. Companies often sell or withhold shares to cover tax. You cannot 83(b) an RSU.

California, New York and other states may tax equity income based on workdays, residency and source rules that do not match your intuition. Exercising the week after you move can create multi-state filings. This alone justifies a specialist when numbers are large.

Before you click Exercise

1. What is the spread × shares in dollars?
2. ISO or NSO (or split)?
3. Can I sell shares soon to fund tax?
4. Estimated AMT (ISOs) or withholding (NSOs)?
5. Does early exercise + 83(b) still make sense, and is the 30-day clock alive?
6. How does this interact with QSBS holding periods?
7. If I leave in 90 days, will I regret deploying cash into illiquid stock?

Talk to a CPA or tax attorney who regularly handles equity compensation before exercising six-figure spreads, filing 83(b), assuming QSBS on a multi-million outcome, moving states around vest/exercise/sale, or combining a tender with ISO exercise. Cheap relative to a mistaken $200k AMT payment: a few hours of advisory. Hiring managers should not give tax advice over Slack.

Common mistakes

• Assuming the broker or Carta prevents a tax surprise. They do not.
• Acking the ISO as "tax-free." AMT is the check.
• Missing the 30-day 83(b).
• Treating blog QSBS tables as a filing position.

Key takeaways

• NSOs: ordinary income on the spread at exercise; later appreciation is capital.
• ISOs: no regular tax at exercise, but AMT on the spread; qualifying sale needs 2 years from grant and 1 year from exercise.
• 83(b): 30 days; powerful at low FMV; irreversible if you forfeit.
• QSBS: potentially huge federal exclusion; post–July 4, 2025 issuances get tiered 3/4/5-year benefits — confirm current law.
• Model before you exercise; pay for advice when the spread is life-changing.

Further learning

Kirsty Nathoo on startup mechanics (cap tables, dilution and the context in which these tax events happen):

The Holloway Guide to Equity CompensationStock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.Holloway IRS Topic 427: Stock optionsTopic No. 427 Stock Optionsirs.gov Foley Hoag summary of 2025 QSBS changesLearn more about the latest updates in legal, with expert commentary and insights from trusted attorneys from Foley Hoag LLP. Foley Hoag is a professional community of highly qualified attorneys from all over the US.foleyhoag.com