TLDR
If you hold ISOs and your company is acquired, then you may trigger the 100K Limit Rule if your option agreement has an acceleration feature.
If you hold ISOs and your company is acquired, then you may trigger the 100K Limit Rule if your option agreement has an acceleration feature. Suddenly vesting more of your unvested options will increase the total number of options you vest for the year. Although your original grant was designed to stay under the 100K Limit, you may suddenly exceed it unintentionally. As a result, some of your ISOs will be converted to NSOs in order for you to stay compliant. NSOs are more expensive since they are subject to ordinary income tax including the Medicare surtaxes.
On the other hand, if you exercised some of your ISOs in advance, then the number of shares exceeding the 100K Limit due to acceleration will be reduced. Moreover, you could also be eligible for long term capital gains or at least a disqualifying disposition which avoids the Medicare surtax.
If you hold employee stock options or restricted shares in a private company funded by institutional venture capital, feel free to reach out via the form below for more information on how we can assist you with non-recourse funding. By doing so, you can not only avoid the risks associated with investing directly in a startup but possibly improve your taxes as well. For ways to reduce stock option taxes or specific tax related support related to stock option exercises, please contact Scott Chou.
Frequently Asked Questions
How does the $100K ISO limit work?
What is a strike price?
The strike price or exercise price is how much an employee will pay to exercise one share of their company's stock.
What’s the difference between ISOs and NSOs?
Incentive Stock Options (ISOs) have tax advantages, while Non-Qualified Stock Options (NSOs) are taxed as regular income. Click here for more on the differences between ISOs and NSOs.
What does ESO Fund do?
ESO Fund helps startup employees exercise their stock options without risking their own cash. We provide non-recourse funding, covering 100% of the exercise cost and taxes, so employees can retain ownership and benefit from future upside. If the company doesn’t succeed, you owe us nothing—we take on all the risk.
