Equity Compensation Planning

Understanding Your Equity Compensation

Adnan Hamed has more than 30 years of experience in the technology industry, including roles at IBM, Verizon Enterprise, Lucent, Motorola, and Siemens Telecom. For about 20 of those years he lived and worked in the San Francisco Bay Area.

BlueAris is a fee-only, fiduciary financial planning firm. Services may be provided remotely, subject to applicable state registration requirements.

Who This Information May Be Relevant For

Employees at public companies receiving RSUs or ESPP shares
Employees at pre-IPO and private companies holding stock options or restricted stock
Founders and early employees who may hold Qualified Small Business Stock
Individuals changing jobs, facing an IPO or acquisition, or holding a large position in one company’s stock
Employers seeking general educational resources on equity compensation for their employees

Equity Compensation Topics

RSUs (Restricted Stock Units)

When RSUs vest, their fair market value is generally taxed as ordinary income. Employers often withhold federal tax at the 22% supplemental rate. Supplemental wages above $1 million in a year are withheld at 37%. The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, made these individual tax rates permanent.

If your marginal tax rate is higher than the withholding rate, withholding may not cover the full tax owed. Related planning topics may include estimated tax payments and whether to hold or sell vested shares.

Stock Options (ISOs and NSOs)

When NSOs are exercised, the spread is generally taxed as ordinary income. ISOs are generally not taxed at exercise for regular tax purposes, but the spread is included in the Alternative Minimum Tax (AMT) calculation.

2026 change under OBBBA: OBBBA made the higher AMT exemption amounts permanent. Starting in 2026, it also lowered the income levels at which the exemption phases out and doubled the phase-out rate:

The exemption begins phasing out at $500,000 of alternative minimum taxable income (AMTI) for single filers and $1,000,000 for joint filers.
The exemption is reduced by 50 cents for every dollar above those levels, up from 25 cents.

As a result, some higher-income taxpayers may face AMT on ISO exercises that would not have triggered it in prior years. Exercise timing, the number of shares exercised, and holding periods all affect the result.

Restricted Stock Awards (RSAs) and the 83(b) Election

With an RSA or early-exercised options, you may be eligible to file an 83(b) election. The election lets you pay tax on the shares’ value when you receive them instead of their value at vesting. It must be filed within 30 days of the transfer, and the deadline cannot be extended. If you later forfeit the shares, you may have paid tax that cannot be recovered.

ESPP (Employee Stock Purchase Plans)

Qualified ESPPs may let employees buy company stock at a discount of up to 15%. How the shares are taxed depends on when they are sold:

Qualifying disposition: held at least 2 years from the offering date and 1 year from the purchase date.
Disqualifying disposition: sold before both periods are met.

The cost basis reported on a broker’s Form 1099-B may not include the discount already taxed as wages. If the basis is not adjusted, the same income could be taxed twice.

QSBS (Qualified Small Business Stock)

Shareholders of qualifying C-corporations may be eligible to exclude some or all of their gain from federal tax. Stock generally must be acquired at original issuance. OBBBA expanded these rules for stock issued after July 4, 2025:

50% exclusion after at least 3 years, 75% after 4 years, 100% after 5 years
Exclusion limited to the greater of $15 million or 10× basis
Company gross assets of $75 million or less when the shares are issued

Stock issued on or before July 4, 2025 remains under the prior rules:

5-year holding period
Exclusion limited to the greater of $10 million or 10× basis
$50 million gross-asset limit

Not all states follow the federal QSBS rules.

Concentrated Stock Positions

Holding a large share of your net worth in your employer’s stock ties both your portfolio and your income to one company. Diversifying over multiple years may spread the tax impact across those years.

Changing Jobs, IPOs, and Acquisitions

Leaving a company can trigger several deadlines:

Vested ISOs not exercised within 3 months of leaving are generally treated as NSOs if exercised later.
Unvested RSUs are often forfeited.
Post-termination exercise windows vary by plan.
IPO lockups and acquisition terms may add their own deadlines.

Relocating with Equity

Moving to another state may not end your tax obligation to the state you left. California, for example, generally taxes equity income in proportion to the workdays spent there:

RSUs: workdays from grant to vesting
Stock options: workdays from grant to exercise

Company Insiders

Directors and officers are generally subject to blackout periods and trading restrictions. A Rule 10b5-1 trading plan, which includes a required cooling-off period, is one approach insiders may discuss with their company’s legal counsel.

Equity Compensation Education for Employers

Employers that grant equity compensation may wish to give employees general education on how RSUs, stock options, ESPPs, and related tax rules work. BlueAris may be engaged to provide general educational sessions or materials on these topics. The terms of any such engagement are set out in a written agreement.

General education provided to employees does not create an advisory relationship with any individual employee. Personalized advice is available only under a separate written advisory agreement between BlueAris and that individual. Employee participation is voluntary. An employer’s engagement of BlueAris is not an endorsement or recommendation of BlueAris to its employees.

Common Equity Compensation Timeframes

Event	Timeframe
83(b) election	30 days from transfer (grant or early exercise)
ISO exercise after leaving employment	Generally 3 months to retain ISO status
ISO qualifying disposition	2 years from grant and 1 year from exercise
ESPP qualifying disposition	2 years from offering and 1 year from purchase
QSBS partial / full exclusion	3 / 4 / 5 years (stock issued after July 4, 2025, under OBBBA)

Working With BlueAris

If you would like to learn more, you may contact us. An advisory relationship begins only after a written advisory agreement is signed. That agreement and our Form ADV Part 2A describe the services, fees, and terms.

Scope

BlueAris does not provide tax preparation, accounting, or legal services. Clients are responsible for implementing their own decisions, including transactions with their broker and tax filings with their tax professional. No tax, investment, or financial outcome is guaranteed.

Book a free 30 minute consultation or email info@bluearis.com.

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