How the One Big Beautiful Bill Affects Your Equity Compensation
If you receive stock options, restricted stock units, or other equity compensation, the "One Big Beautiful Bill" Act (OBBBA) of 2025 is worth understanding.
It didn't overhaul the rules for equity comp, but it did make permanent a set of tax changes that many people assumed would expire, and it introduced a few new provisions that affect how you should think about exercising options, managing AMT exposure, and timing charitable giving.
Here's a plain-language look at what changed and why it matters.
1. The Tax Rates Are Now Permanent
The Tax Cuts & Jobs Act of 2018 (TCJA) modified the income tax brackets and reduced the top marginal tax rate from 39.6% to 37%. Those changes were scheduled to sunset after 2025. But, the OBBBA eliminated that expiration date, making the TCJA rates permanent.
For equity comp holders, this matters because you can now plan around the current bracket structure with more confidence. Before the OBBBA passed, there was uncertainty about if the top rate would snap back to 39.6% in 2026, but now that uncertainty is gone.
The seven-bracket structure remains in place. Capital gains rates and the Medicare surtax on investment income were not changed. So, if you've been doing multi-year planning around the current brackets, your framework is still valid.
2. Spreading Income Across Years Remains One of the Best Tools Available
Nothing about the OBBBA changes the core logic of spreading taxable events across multiple years, and that strategy is worth understanding if you're not already using it.
Here's how it works in practice:
You and your spouse file jointly with $300,000 of taxable income, and you expect similar income next year. That puts you in the 24% bracket.
You also have a $200,000 spread on non-qualified stock options. Exercise all of them in one year, and your income rises to $500,000, landing you in the 32% bracket.
That higher rate applies to the entire amount above the 24% threshold of $403,550, which adds up quickly.
However, you could exercise just enough to stay within the 24% tax bracket this year, handle the rest next year, and stay in the 24% bracket both years. You could even do this in December of one year and January of the next.
Same options, same total gain, meaningfully lower tax bill.
The math is straightforward once you sit down with it, but it does require knowing your bracket thresholds and projecting income across years before you act.
3. The Withholding Rate Is Still 22%
This is one of the most common surprises for people receiving equity comp for the first time.
When your company withholds taxes on a stock option exercise or RSU vesting, they apply a flat supplemental rate of 22% for income up to $1 million in a calendar year. That rate is baked into the tax code and doesn't adjust based on your actual tax bracket.
If your total income for the year puts you in the 32%, 35%, or 37% bracket, there's a gap between what was withheld and what you actually owe. That gap gets settled at filing, and if it's large enough, you may also face underpayment penalties.
The solution is to get ahead of it. Options include:
Setting aside additional cash to cover the difference
Adjusting your salary withholding through a revised Form W-4
Making estimated quarterly tax payments
The right approach depends on your situation, but the key is not discovering the shortfall after the fact.
4. ISOs and the AMT: More Room Than Before 2018, With a New Wrinkle
Incentive stock options (ISOs) have their own tax rules. Exercising them doesn't create ordinary income, but the spread at exercise is treated as an adjustment for the alternative minimum tax (AMT).
Before the TCJA, this created more frequent problems for people who exercised ISOs and held the shares past year-end. They'd end up with a substantial AMT bill even though they hadn't sold anything and hadn't received any cash.
The TCJA significantly raised the AMT income exemption amounts and pushed up the thresholds at which those exemptions phase out. The result is that far fewer people trigger the AMT when they exercise and hold ISOs today compared to before 2018. This provided some level of cushion, but it is still a substantial factor in deciding to exercise ISOs.
The OBBBA introduced a complication worth knowing about. It raised the cap on state and local tax (SALT) deductions from $10,000 to $40,000 for tax years 2025 through 2029 (with a 1% annual increase and a phaseout for taxpayers with modified adjusted gross income above $500,000). For people in high-tax states, this is a meaningful reduction in their regular tax bill.
But, the AMT doesn't allow a SALT deduction at all. So, a larger SALT deduction on your regular return widens the gap between your regular taxable income and your AMT income. That can lower the income level at which you cross into AMT territory. If you're planning an ISO exercise-and-hold strategy, you need to run your AMT calculation with the new SALT numbers factored in. The crossover point may be lower than you'd expect.
There's also a change that affects the AMT calculation starting in 2026. The AMT exemption phaseout now begins at lower income thresholds ($1,000,000 for joint filers, $500,000 for single filers) and phases out at 50 cents per dollar rather than 25 cents. For anyone deciding when to exercise ISOs, this is a reason to compare the AMT math across years rather than assuming the calculation will look the same from one year to the next.
5. Donating Appreciated Stock
The OBBBA set the standard deduction at $16,100 for individuals and $32,200 for joint filers for 2026, with modest annual adjustments going forward. Those thresholds matter when you're thinking about charitable giving.
Donating appreciated company stock directly to a charity or donor-advised fund is one of the more tax-efficient strategies available to equity comp holders. You get to deduct the full fair market value of the shares, and never have to recognize the capital gain. If your donations put you above the standard deduction threshold, the benefit is compounded further.
For people whose annual giving doesn't reliably clear the standard deduction on its own, concentrating multiple years of donations into a single year can make itemizing worthwhile.
New OBBBA provisions affecting charitable deduction limits also come into play at certain income levels starting in 2026, which is worth factoring into the timing of larger gifts.
Tax Planning Should Support Your Financial Goals, Not Replace Them
It's worth stepping back from the specifics for a moment. Tax efficiency is worth pursuing, but it works best as a constraint on your decision-making rather than the reason for it.
Exercising options or selling shares primarily because the bracket math looks favorable in a particular year only makes sense if it also fits your investment objectives, liquidity needs, and broader financial picture. Holding a concentrated stock position longer than you're comfortable with, or tying up cash you might need elsewhere just to optimize your tax outcome can create risks that outweigh the savings.
The approach most financial advisors recommend is to start with your goals and use tax planning to execute them more efficiently. Letting the tax tail wag the dog tends to produce decisions that look good on paper but create problems down the road.
What to Keep in Mind
A few practical questions that tend to come up for equity comp holders in light of these changes:
Where does your income sit relative to the bracket thresholds, and how much room do you have before crossing into a higher rate? Is there flexibility to spread option exercises or share sales across years?
Is your tax withholding keeping pace with your actual bracket? If equity events have created a gap, is it being addressed through estimated payments or adjusted salary withholding?
If you hold ISOs, how does the higher SALT deduction affect your AMT crossover point? And given the tighter AMT phaseout rules in effect for 2026, does the timing of ISO exercises need to be reconsidered?
If you're planning to donate appreciated stock, are there OBBBA provisions affecting your deduction that make a particular year more advantageous?
None of these questions has a universal answer. The right approach depends on your income, your state of residence, your options' terms, and your personal financial situation. But they're worth working through with a tax advisor who understands equity compensation, because the numbers the OBBBA moved are ones that affect the math in ways that aren't always obvious on the surface.
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.