Equity Compensation Glossary
Plain-English definitions of equity compensation terms: ISO, NSO, AMT, 83(b), QSBS, cost basis, wash sale, strike price and more.
- 83(b) election
- A filing made within 30 days of receiving restricted property to be taxed at grant-date value instead of at each vesting date. Read more
- 409A valuation
- An independent appraisal of a private company's common stock, used to set option strike prices. Read more
- AMT
- Alternative minimum tax — a parallel tax calculation that counts the ISO exercise spread as income. Read more
- AMT credit
- A carryforward credit for AMT paid on timing differences such as an ISO exercise. Read more
- AMT crossover
- The exercise size at which tentative minimum tax begins to exceed regular tax. Read more
- Bargain element
- Fair market value at exercise minus the strike price, multiplied by shares exercised. Read more
- Cliff
- An initial period, usually one year, before any of a grant vests.
- Cost basis
- The amount used to measure capital gain or loss on a sale. Read more
- Disqualifying disposition
- Selling ISO shares before the two-year and one-year holding periods, converting the spread to ordinary income. Read more
- Double-trigger RSU
- An RSU that requires both time vesting and a liquidity event before shares are delivered. Read more
- Early exercise
- Buying unvested option shares ahead of schedule, subject to company repurchase rights. Read more
- Form 3921
- Information return reporting an ISO exercise. Read more
- Form 3922
- Information return reporting an ESPP share transfer. Read more
- Form 6251
- The IRS form used to compute alternative minimum tax. Read more
- Form 8801
- The IRS form used to claim the minimum tax credit. Read more
- Form 15620
- The IRS standardised form for making a Section 83(b) election. Read more
- ISO
- Incentive stock option — an employee-only option with potential long-term capital gains treatment. Read more
- Lockup
- A post-IPO period, typically 90–180 days, during which insiders cannot sell. Read more
- NSO
- Non-qualified stock option — taxed as ordinary income on the spread at exercise. Read more
- PSU
- Performance share unit — equity that vests based on performance metrics. Read more
- QSBS
- Qualified Small Business Stock — C-corp stock that can exclude large amounts of gain from federal tax. Read more
- RSU
- Restricted stock unit — a promise of shares taxed as wages at vesting. Read more
- Sell-to-cover
- Automatically selling part of a vesting tranche to fund tax withholding. Read more
- Strike price
- The fixed price per share paid when exercising an option. Read more
- Supplemental withholding rate
- The flat 22% federal rate applied to supplemental wages up to $1 million. Read more
- Wash sale
- A disallowed loss caused by acquiring identical stock within 30 days of a loss sale. Read more
- $100k rule
- The annual limit on ISO value that can first become exercisable, with the excess treated as NSOs. Read more