Worksheet
Before you exercise stock options: the numbers to gather
A tax estimate for an option exercise runs on a short list of figures. Some are in your grant paperwork and the rest are on your own return. Fill in the blanks below and whoever prepares the estimate will have the figures it needs.
Which kind of option you hold
Your grant agreement names the kind. The two are taxed at different moments, so this answer decides which rows below you need.
| Kind | When you exercise |
|---|---|
| Incentive stock option (ISO) | Nothing is added to your income for the regular tax. The alternative minimum tax (AMT), a second calculation the IRS runs beside the regular one, doesn't follow that rule, so you may owe AMT for the year. |
| Nonstatutory stock option (NSO) | You have income equal to the stock's fair market value minus what you pay for it. |
The figures from your grant
| What to write down | Your figure |
|---|---|
| The grant date. One of the two holding periods for an ISO runs 2 years from this date. | |
| The exercise price per share, sometimes called the strike price. | |
| The number of vested shares you could exercise today, and the date each grant expires. | |
| The fair market value per share today. A private company may be able to tell you the value it is using. The value minus the exercise price, times the shares, is the spread. For an ISO, the spread on the day you exercise generally goes on Form 6251, line 2i. | |
| How the grant splits between the two kinds. When the stock under ISOs that first become exercisable in one calendar year is worth more than $100,000, measured at the grant date, the options over that amount are treated as NSOs. Your employer's records may show the split. | |
| Your last day of employment if you've left or plan to leave. An ISO keeps its tax treatment only when you were an employee from the grant date until 3 months before the exercise. For a disabled employee the period is 1 year, and an exercise by the estate after the holder's death also qualifies. |
The figures from your own return
For an ISO, the AMT is owed only to the extent the tax figured the AMT way comes out higher than your regular tax, so the grant's figures can't answer the question alone.
| What to write down | Your figure |
|---|---|
| Your filing status. The AMT exemption for 2026 is $90,100 for an unmarried filer and $140,200 on a joint return. It shrinks by 50 cents for every dollar of AMT income over $500,000, or over $1,000,000 on a joint return. | |
| Your expected taxable income and regular tax for the year, with the exercise left out. The AMT rate is 26% on the first $244,500 of income above the exemption and 28% on the rest. | |
| Other income still to come this year: a bonus, a stock vest, a sale of shares. | |
| Last year's Form 8801 if you filed one. AMT caused by an ISO exercise can produce a credit in later years. Form 8801 figures the credit and carries any unused part forward. |
| What to write down | Your figure |
|---|---|
| How your employer will withhold. Employers generally may withhold federal income tax on this kind of pay at a flat 22% while your supplemental wages for the year are $1 million or less. Above that, 37% is required. | |
| Your own top federal rate. If your employer withholds at 22% and your rate is higher, expect to owe the difference on that income when you file. |
The dates that change the tax on a later sale
- The later of 2 years after the grant and 1 year after the exercise. Sell ISO shares after that day and the whole gain or loss is a capital gain or loss. The holding period for the stock begins the day after you exercise.
- Any sale before that day. If there is a gain, it is ordinary income up to the spread on the day you exercised, and your employer should report that part as wages on Form W-2. Any gain above it is capital gain.
- The end of the calendar year. If you exercise an ISO and sell those shares in the same year, the regular tax and the AMT treat it the same way and no AMT adjustment is made.
What Virginia does
- Virginia's income tax starts from federal adjusted gross income. An ISO exercise adds nothing to that figure, so Virginia generally taxes an ISO when the shares are sold, not when you exercise.
- Virginia requires no income tax withholding on the grant, the exercise or the sale of stock from an ISO.
- If you moved into or out of Virginia between the grant and the sale, write down the move date and where you worked in those years. How much belongs on the Virginia return depends on the move date, where the work was done and the kind of equity.
What to keep afterwards
- Form 3921. The company sends one for each ISO exercise. It shows the grant date, the exercise date, the exercise price per share, the fair market value per share on the exercise date and the number of shares.
- Your AMT basis. The AMT adjustment raises your basis in the shares for the AMT, so it is likely to differ from your basis for the regular tax. Keep a record of both. You'll need each one in the year you sell.
What this worksheet leaves to you
It doesn't say whether to exercise or how many shares. That decision is yours, and a financial advisor can help with the investment side of it. The worksheet gets the figures in one place so the tax side can be worked out before you decide.
- Sources: IRS Topic 427; IRS Publication 525 (2025); the instructions for Form 6251, Form 8801 and Form 3921; 26 U.S.C. 422; Rev. Proc. 2025-32 and IR-2025-103 for the 2026 figures; IRS Publication 15 (2026); Virginia Tax Commissioner Rulings 05-163 and 05-32.
This worksheet is general information, current as of November 2026. It isn't advice for your situation.
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