I'm trying to calculate my NSO stock options cash out amount after taxes. Every calculator I use says something different. I live in AZ. Is there anyway to know the exact tax percentages, both state and federal, that will be taken out?
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First, congratulations on having stock options with some value. Second, as you probably know, taxation of stock options can be tricky. Since I don’t know the specifics of your situation, it seems like we can breakdown your question into the following parts:

  1. What is taxable from the exercise of your non-statutory stock options (NSOs)? A lot will depend on the type of transaction from your exercise. As pointed out in this NSO article, there are generally four categories, each of which with its own tax considerations:
  • You exercise your option to purchase the shares and you hold onto the shares.
  • You exercise your option to purchase the shares, and then you sell the shares the same day.
  • You exercise the option to purchase the shares, then you sell them within a year or less after the day you purchased them.
  • You exercise the option to purchase the shares, then you sell them more than a year after the day you purchased them.

More information on the taxation of NSOs can be found in IRS Publication 525, in the section on Non-statutory Stock Options (p. 11).

  1. What tax is withheld by your employer (current or former) at exercise? I’m not an expert in this area, and there is often confusion regarding withholding for existing and former employees. Nevertheless, federal and state withholding and payroll taxes (Medicare, Social Security, and Federal Unemployment Tax) would normally be deducted on the compensation element of the exercise. Keep in mind that you will eventually reconcile your withholding with the amount you actually owe, whenever you calculate your annual federal and state taxes.

 

Consider the following next steps:

  • Contact your employer (current or former) for more specific information regarding the nature of your exercise, and to verify what was withheld, and how (E.g. via W2, or 1099?).
  • Based on the type of exercise listed in number 1 above, recheck some of the online calculators for a rough estimate of what, if anything, you might owe.
  • Depending on your situation, and the amount of money involved, it could be wise to seek out appropriate tax help from a CPA or professional who is knowledgeable in this area.

    Thank you and good luck!

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