$100,000 Rule – ISO's

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This topic contains 1 reply, has 2 voices, and was last updated by  Kaye Thomas 2 months, 1 week ago.

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  • #3798

    Addie1234
    Participant

    Hello,

    I have a question on how the $100,000 rule affects individual employees when they exercise ISO options.

    I have seen the rule interpreted to mean the following, “The maximum value of the stock for which an employee can exercise of ISOs during a calendar year generally cannot exceed $100,000 (valued as of the date of the grant.)”

    I thought the rule prohibited a person from having more than $100,000 of ISOs (based on the grant price) become exercisable in a calendar year? Otherwise, the additional shares would then become disqualified.

    Some people interpret this rule to mean that a person can not exercise more than $100,000 of ISOs in a given calendar.

    For example, what if an employee wants to exercise 1,000 ISO shares at a grant price of $102, and for the sake of the example, the grants were over multiple vesting years and did not violate the $100,000 rule. The total cost of the options would then over by $100,000.

    Does the $100,000 cause the extra $2,000 of shares to become disqualified? I thought the $100,000 rule is only related to how many options become exercisable during a given year, and not the value of the ISOs at exercise when an employee purchases the option?

    Any clarification on of how the $100,000 rule affects employees when they go to exercise their ISO shares would be greatly appreciated.

    Thanks,
    Dan

    #3914

    Kaye Thomas
    Moderator

    Your understanding is correct. The rule pertains to options becoming exercisable and does not limit the value of shares that are exercised in a given year. Whoever provided the language you quoted stated the rule incorrectly. We explain the rule on this page:

    $100,000 Limit for ISOs

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