When should I exercise my stock options? The 4 choices compared

When you should exercise your stock options depends on three things. They are the type of option, the tax due when you exercise, and the cash you can afford to lose. The usual choices are early with an 83(b) election, after vesting, after you leave, or at an IPO or acquisition.

Nonqualified stock options (NSOs) are taxed as wages when you exercise. Incentive stock options (ISOs) owe no regular tax then, but the gain on paper counts toward the alternative minimum tax (AMT). If you hold ISOs, check your 2026 AMT room before December 31.

NSO tax at exercise	The spread, taxed as wages
ISO tax at exercise	None, but the spread counts for AMT
2026 AMT exemption	$90,100 single, $140,200 joint
Exemption starts shrinking	Above $500,000 single, $1,000,000 joint
ISO long-term gain	Sell over 2 years after grant and 1 year after exercise
ISO window after leaving	3 months, or 1 year if you are disabled
83(b) deadline	30 days after an early exercise
Rules checked	October 28, 2026

When should I exercise my stock options?

Exercise when the tax at exercise is low and you could afford to lose what you pay. Here is how the four usual moments compare.

1. Early, before vesting, with an 83(b) election. Some plans let you buy shares before they vest. You then have 30 days to file an 83(b) election. If you pay the full share value, an NSO creates no income, and an ISO adds nothing to AMT income. For ISOs, the election counts only for the AMT. The risk is paying cash for shares you could forfeit or that could become worthless.
2. After vesting, while you still work there. An NSO's spread is wages in the year you exercise, with tax withheld. An ISO creates no regular tax, but the spread is AMT income if you still hold the shares at year end. Sell ISO shares more than 2 years after grant and 1 year after exercise, and the whole gain is long-term.
3. Within 3 months after you leave. An ISO keeps its tax treatment only if you exercise within 3 months after your job ends. The window is 1 year if you are permanently and totally disabled. Exercise later, if your plan allows it, and it is taxed as an NSO. Your plan, not the tax law, sets when the option expires.
4. At an IPO or acquisition, selling at once. A same-day exercise and sale is paid for from the proceeds. The whole spread is ordinary income, for an ISO as for an NSO, and no AMT applies. You give up long-term gain, but you take no price risk.

Do you have to pay taxes when exercising stock options?

Yes for NSOs, and possibly for ISOs through the AMT.

• NSOs. The spread, the share value minus your exercise price, is wages on your W-2. Social Security and Medicare tax apply too. Your employer may withhold income tax at a flat 22%, and must use 37% on supplemental pay over $1 million in a year. Your own rate can be higher than 22%.
• ISOs. No regular income tax, Social Security or Medicare tax is due at exercise. If you exercise vested ISOs and still hold the shares at year end, the spread counts as AMT income.
• Selling NSO shares later. Your basis is the price you paid plus the spread already taxed. For options granted after 2013, your broker's Form 1099-B shows only the price paid. Correct it on Form 8949, or you pay tax twice.

How do I know when to exercise an option?

Check four numbers before you exercise: the spread, your AMT room, the cash you need and your deadline.

1. The spread. A small spread means little tax at exercise.
2. Your AMT room, for ISOs. For 2026 the AMT exemption is $90,100 single and $140,200 joint. It shrinks by 50 cents per dollar of AMT income above $500,000, or $1,000,000 joint.
3. The cash. You need the exercise price plus any tax due, and you could lose all of it if the shares become worthless.
4. Your deadline. An ISO cannot be exercised more than 10 years after its grant. Your plan sets the expiration date and the window after you leave.

AMT you pay because of an ISO exercise is not lost. It becomes a credit for later years, used in years when your regular tax is higher than your tax under the AMT rules. Our guide to the AMT shows how the exemption works.

Why does the month matter for ISOs?

It matters because a sale in the same calendar year as the exercise removes the AMT on that exercise. You owe regular tax instead, as ordinary income on the spread or on your actual gain, if smaller.

So an ISO exercise in January leaves you eleven months to watch the price. If it falls, you can sell before December 31 and owe no AMT on that exercise. An exercise in late December leaves almost no time to change course.

When	What to do
Within 30 days of an early exercise	File your 83(b) election
December 31, 2026	Last day for an exercise or sale to count in 2026
3 months after your last day at work	Last day to exercise and keep ISO treatment
January 15, 2027	Fourth 2026 estimated tax payment due
April 15, 2027	File your 2026 return; Form 6251 figures any AMT

What should you do now?

• Find your grant papers: the option type, exercise price, vesting dates, expiration date and the window after you leave.
• For ISOs, estimate your 2026 AMT before you exercise.
• For NSOs, check whether the withholding covers your bracket, and make an estimated payment if it does not.
• If you exercise early, file the 83(b) election within 30 days and keep proof of mailing.

For the full rules on each type, see our guides to ISO taxes and NSO taxes, or meet our equity compensation CPAs.

Sources.

• 26 U.S.C. 422, incentive stock options
• 26 U.S.C. 421, ISO exercise and disqualifying dispositions
• 26 U.S.C. 83, property for services and the 83(b) election
• 26 U.S.C. 56(b)(3), ISOs under the AMT
• 26 U.S.C. 55, the AMT exemption and phase-out
• 26 U.S.C. 3121(a)(22), no Social Security or Medicare on ISOs
• Treas. Reg. 1.422-1, early exercise of ISOs
• Rev. Proc. 2025-32, 2026 AMT amounts
• IRS, Instructions for Form 6251 (2025)
• IRS, Instructions for Form 8801 (2025)
• IRS, Instructions for Form 8949 (2025)
• IRS Publication 15 (2026), supplemental wage withholding
• IRS Topic 427, stock options