Five Tax Considerations for Executives with Complex Compensation

If your pay package includes stock options, restricted stock units, deferred compensation, or a concentrated position in company stock, tax planning stops being a once-a-year exercise and becomes something you manage year-round. The rules governing this kind of compensation are unforgiving of bad timing, and 2026 brings a fresh set of numbers and a few structural changes worth knowing before you make your next decision. Here are five areas we encourage clients to think through carefully.

Exercising incentive stock options (ISOs) doesn't create regular taxable income at exercise, which is exactly what makes them attractive — but the spread between your exercise price and the stock's fair market value is added back as a preference item for the alternative minimum tax (AMT). Exercise a large block in one year, and you can owe a substantial AMT bill on paper gains even if you haven't sold a single share.

For 2026, the AMT exemption is $90,100 for single filers and $140,200 for those married filing jointly, phasing out once alternative minimum taxable income exceeds $500,000 (single) or $1,000,000 (joint). Because the exemption phases out as income rises, executives who are already well compensated often get little or no AMT shelter, which makes the math on a large ISO exercise less forgiving than it looks at first glance.

The planning lever here is timing: spreading exercises across multiple tax years, modeling the AMT credit you'll generate and when you can actually use it, and coordinating exercise decisions with vesting schedules and blackout windows rather than reacting to a deadline. A same-year exercise-and-sell (a “cashless exercise”) avoids the AMT question entirely but converts what could have been long-term capital gain into ordinary income — a trade-off that deserves a deliberate decision, not a default.

When restricted stock units vest or you exercise nonqualified stock options (NQSOs), the income is taxed as ordinary wages — but employers generally withhold at a flat statutory rate rather than your actual marginal rate. For supplemental wages up to $1 million in a year, that flat rate is 22%; above $1 million, it jumps to 37%. If your top marginal bracket is 37% (which begins at $640,600 for single filers and $768,700 for joint filers in 2026) but a vesting event is withheld at 22%, you're carrying a gap that shows up as an unpleasant surprise at filing time — and potentially an underpayment penalty if it isn't addressed through estimated payments.

Layer on top of that the additional 0.9% Medicare tax on wages above $200,000 (single) or $250,000 (joint), and the 3.8% net investment income tax on income above similar thresholds if you have investment income from the vested or exercised shares — and it's easy to see how a “22% withholding” event can leave you 15 to 20 percentage points short of what you'll actually owe. We generally recommend a mid-year withholding and estimated-tax checkup for any executive with equity compensation, rather than waiting until tax season to find out.

Nonqualified deferred compensation (NQDC) plans let you defer a portion of salary or bonus beyond what qualified plans allow, but the tradeoffs are real. Deferral elections under Section 409A are generally irrevocable once made — you're committing to a distribution schedule years in advance, often before you know what your tax bracket or liquidity needs will look like when the money actually arrives. Elect poorly, and you can find yourself receiving a large distribution in a year when it pushes you into a higher bracket, triggers the additional Medicare tax, or coincides with other income events like a stock vesting or a business sale.

There's also counterparty risk to keep in mind: unlike a 401(k), NQDC balances are general assets of the employer and are exposed to the company's creditors if it runs into financial trouble. One nuance that surprises many executives is the FICA “special timing rule” — Social Security and Medicare taxes on NQDC are generally due when the compensation vests (even though income tax isn't due until distribution), which means a tax bill can show up years before the cash does. Coordinating deferral amounts and distribution timing with your broader income picture — including other equity events — is where the real value of planning shows up.

Many executives end up with a large share of their net worth tied up in a single company's stock, whether through years of equity grants, ISO or NQSO exercises, or an employee stock purchase plan. That concentration is a business risk as much as a tax issue, but taxes often dictate how — and how fast — you can responsibly diversify.

A handful of tools tend to come up in these conversations: 10b5-1 trading plans, which let insiders establish a pre-set selling schedule during an open window and continue selling even if a blackout period begins; exchange funds, which allow you to swap concentrated stock for a diversified pool of holdings on a tax-deferred basis if you're willing to commit to a multi-year lockup; and charitable strategies such as donor-advised funds or charitable remainder trusts, which let you contribute appreciated stock, take a deduction for its fair market value, and avoid recognizing the capital gain outright. For business owners and early employees at qualifying companies, it's also worth checking whether your shares meet the requirements for the Section 1202 qualified small business stock (QSBS) exclusion — recent legislation raised the per-issuer exclusion cap to $15 million for stock acquired after July 4, 2025, expanded the gross-assets eligibility threshold to $75 million, and introduced a tiered holding period benefit: a 50% exclusion at three years, 75% at four years, and the full 100% exclusion at five years or more. None of these tools is a one-size-fits-all answer, and the right combination depends heavily on your cost basis, time horizon, and how much company-specific risk you're comfortable carrying.

Recent tax legislation made the current individual rate structure permanent, keeping the top marginal rate at 37%, and it also reshaped the state and local tax (SALT) deduction that many California executives rely on. The SALT cap rose to $40,000 for 2026 (indexed to increase roughly 1% annually), but it phases down for taxpayers with modified adjusted gross income above $500,000, reducing the deduction by 30 cents for every dollar of income above that threshold until it's fully phased out back down to the old $10,000 cap once income reaches $600,000. For an executive whose income sits in that phase-out band, an additional dollar of vesting income or bonus can effectively cost more than the stated marginal rate once you account for the shrinking deduction — sometimes referred to as a “SALT torpedo.”

This is where income and deduction timing becomes more than a year-end afterthought. Decisions about when to exercise options, when to accelerate or defer bonus income, whether to bunch charitable contributions into a single year, and how to sequence Roth conversions or capital gain recognition can all be influenced by exactly where your income falls relative to these thresholds — not just your top bracket in isolation.

Each of these issues shares the same root cause: complex compensation rarely arrives as a single, simple event. It vests, phases in, and interacts with other income in ways that a standard withholding form or a generic tax projection doesn't capture. The executives who navigate this best tend to plan multiple tax years at once, coordinate closely between their tax preparer and their wealth manager, and revisit their strategy whenever a major compensation event — a large vesting date, an option exercise decision, or a deferred compensation election window — is on the horizon.

This article is for general educational purposes only and does not constitute tax, legal, or investment advice. Tax laws are complex and subject to change, and individual circumstances vary significantly. Please consult with a qualified tax professional or attorney regarding your specific situation before making any decisions. 

Peter Susic, CFA®, CFP® Founder & Private Wealth Manager, Fiducia Private Wealth Management peter.susic@fiducia-pwm.com | www.fiducia-pwm.com