Valim’s CPAs handle equity compensation tax for employees and founders.

Most equity compensation is taxed first as pay, and then on any gain when you sell. Stock grants such as RSUs are taxed like wages when delivered, and NSOs on the spread at exercise. Any later rise is a capital gain: 0%, 15% or 20% if held more than a year, and ordinary rates if not. The 3.8% net investment income tax can also apply to the gain once modified AGI passes $200,000, or $250,000 joint. ISOs and Section 423 ESPPs are the exceptions, since their regular tax waits until you sell.

Common examples of equity compensation are restricted stock units (RSUs), restricted stock, stock options and employee stock purchase plans (ESPPs). Stock options from an employee stock option plan are either incentive stock options (ISOs) or non-qualified stock options (NSOs). Some companies also grant stock appreciation rights (SARs) or phantom stock, which pay out based on the share price. The IRS’s equity compensation audit guide also lists stock warrants and direct transfers of stock.

No one type is better for everyone. For employees, the difference is when you pay tax and at what rate. RSUs usually cost nothing, and their full value is taxed as wages when the shares are delivered. With NSOs, you pay the exercise price, and tax comes at exercise, as wages on the spread. ISOs delay regular tax until you sell, and a long enough hold makes the whole gain long-term, though exercising can bring the AMT.

You owe the AMT when your tentative minimum tax, figured on Form 6251, comes out higher than your regular tax. If you exercised vested ISOs and kept the shares past year end, the spread goes on Form 6251, line 2i. For 2026, the first $90,100 of AMT income is exempt for a single filer, or $140,200 on a joint return. In 2026, above $500,000 of AMT income, or $1,000,000 joint, each extra dollar cuts the exemption by 50 cents.

Yes, every stock sale goes on your return, however small. Tax is due only on a gain over your cost basis. Brokers file a Form 1099-B for each sale, whatever the amount, with narrow exceptions such as fractional shares under $20. The $600 figure comes from Forms 1099-NEC and 1099-MISC, and it never applied to stock sales. For most payments made in 2026, that threshold is $2,000, and it is indexed for inflation from 2027.

Equity compensation can be valuable, but its value rises and falls with one company’s stock. For RSUs and NSOs, the income is fixed at vesting or exercise, and a later drop does not reduce it. A loss when you sell offsets capital gains. Against other income, it offsets only $3,000 a year ($1,500 if married filing separately), and the rest carries forward. After an IPO, a lockup, most often 180 days, can also keep you from selling.

Hire a CPA before any decision that sets your tax, since the return can only report what already happened. An 83(b) election is due within 30 days after you get restricted stock or exercise early, so call a CPA before then. With RSUs and an ESPP, the decisions a CPA helps with are when to sell and how much tax to set aside. A CPA who works with stock options can model the tax on an exercise or a sale before you act. Valim’s CPAs plan exercises and sales with you, and file the return that follows.