How the One Big Beautiful Bill Act will affect your equity compensation

There are two ways the the One Big Beautiful Bill Act (OBBBA) can affect your equity compensation.

First, there’s a new tiered gain exclusion for Qualified Small Business Stock (QSBS) for stock acquired after July 4, 2025. Previously, you had to hold your QSBS for five years to be eligible for any gain exclusion. Under the new tiered gain exclusion, eligible taxpayers qualify for:

• 50 percent exclusion after holding QSBS for three years, 75 percent after four years, and 100 percent after five years.

• The new law increases the full exclusion amount of $10 million to $15 million.

• The law also increases the gross asset limit from $50 million to $75 million.

• With that limit increase, it’s possible that more employees who work at startups (or even later-stage private companies) and receive company stock, may qualify for the gain exclusion, provided the stock is qualified and the employee holds the stock at least three years.

Secondly, the increased SALT cap means increased AMT addback for ISOs.

In a year when you exercise hold incentive stock options (or ISOs) and hold the stock through the end of the year, you may be subject to alternative minimum tax (or AMT). 

AMT is calculated by adjusting you regular taxable income, and for ISOs, includes adding back the exercise spread—the difference between the strike price and the stock price on the day of exercise.

Another adjustment is made for state and local taxes. With the increased state and local tax cap (or SALT cap) from 2025 to 2029, the addback may be increased further, provided you have more than $10,000 of state and local taxes to deduct.

This means that alternative minimum tax may be triggered sooner if you are deducting state and local taxes beyond the SALT cap.

I’ve helped hundreds of clients successfully navigate their complex tax situations—growing their business, saving money on their taxes, and taking advantage of tax incentives. Reach out for a consultation here.