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🇺🇸 US · US tax

Ordinary income (equity)

Also called: ordinary income tax, compensation income

In one line

Income taxed at standard salary rates — including the NSO spread at exercise and RSUs when they settle.

In plain English

Some equity events are taxed like your paycheck rather than at capital-gains rates: the NSO bargain element, RSU shares when delivered, and disqualified ISO gains. These are the higher-rate hits.

If you were explaining it to a 5-year-old

Some toy winnings get taxed just like your pocket money — at the normal, higher rate.

Why it matters when you sell

Knowing which parts of your equity are ordinary income versus capital gains tells you the real tax cost of exercising and selling.

Related terms

Non-qualified stock option (NSO)Restricted stock unit (RSU)Bargain elementShort-term capital gainsTax withholding (equity)

Put it to use

RSU tax calculator

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Sources

Primary references for this term: IRS (US tax). Our definitions are written in plain English and kept evergreen — see the glossary methodology. General information, not advice.

Educational information only — not financial, tax or legal advice, and not an offer to buy or sell any security. Definitions are general; your own documents and local law govern your situation. PrivateTechShares is independent and not a broker or marketplace.