What is ISO vs. NSO?
The two flavors of employee stock options - and why the difference is mostly about tax.
ISO vs. NSO: definition
Both ISOs and NSOs give the right to buy company stock at a fixed strike price. The difference is tax and eligibility. ISOs can qualify for favorable long-term capital gains treatment if holding rules are met and can only be granted to employees, but they carry AMT considerations and limits. NSOs can go to anyone (employees, contractors, advisors) and are simpler, but the spread at exercise is taxed as ordinary income.
| Dimension | ISO | NSO |
|---|---|---|
| Who can receive | Employees only | Anyone (employees, contractors, advisors) |
| Tax at exercise | No ordinary tax (but AMT may apply) | Ordinary income on the spread |
| Best-case tax | Long-term capital gains if held | Capital gains only on post-exercise appreciation |
| Complexity | Higher (holding rules, $100K limit, AMT) | Lower |
How Fintra handles it
Fintra tags each option grant as ISO or NSO on the cap table, applies the current 409A strike, and tracks the rules that matter - the $100,000 ISO limit, holding periods, and post-termination exercise windows. At exercise, it records the correct tax treatment and coordinates NSO ordinary-income withholding with payroll, keeping equity and tax consistent.
Worked example
Frequently asked questions
What is the main difference between ISOs and NSOs?
Tax treatment. ISOs can qualify for long-term capital gains and are not taxed as ordinary income at exercise (though AMT may apply), but only employees can receive them and rules are strict. NSOs are taxed as ordinary income on the spread at exercise and can go to anyone.
Why would a company grant NSOs?
Because they are flexible and simple - they can be granted to contractors and advisors, not just employees, and they avoid ISO limits and AMT complexity. Companies also grant NSOs when ISO limits (like the $100,000 annual cap) are exceeded.
What is the $100,000 ISO limit?
No more than $100,000 of ISOs (measured by grant-date fair value) can first become exercisable for an employee in any calendar year; the excess is treated as NSOs. Fintra tracks this limit so grants are classified correctly.
Does Fintra distinguish ISOs and NSOs?
Yes. Fintra tags each grant’s type, enforces the relevant rules (the $100K limit, holding and exercise windows), and applies the correct tax treatment at exercise - coordinating NSO withholding with payroll.
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