What is the $100K ISO limit?
The $100K ISO limit caps how much of an incentive stock option keeps its ISO status. Only $100,000 of ISOs can vest for one person in a calendar year. Anything above that vests as a non-qualified stock option instead. This article explains the limit and how the count works. For what Cake does about it, see How Cake handles the $100K ISO limit.
What counts toward the limit
The dollar value is the exercise price set when the grant was made, multiplied by the options vesting. It's fixed at grant and doesn't move with later 409A valuations.
The limit is per person, not per grant. Every ISO grant someone holds counts toward the same $100,000.
Only ISO grants count. Someone holding NSOs alone is never measured against the limit.
How the count works
Rule | What it means |
|---|---|
Annual reset | The clock resets on 1 January. Each year starts fresh at $100,000. |
Grant order | Grants count in the order they were made. The oldest grant uses capacity first, under 26 CFR §1.422-4(b)(3). |
Type is fixed at vesting | An option keeps the type it had on the day it vested. Later years don't change it. |
No fractional options | A single option is never split in half. If one option would cross the line, it vests as an NSO in full. |
Important: Cake tracks the split to help you stay on top of it. It's a tracking tool, not tax advice, so confirm anyone's specific position with your tax advisor.
What a split looks like
One vesting event can be part ISO and part NSO.
Sarah holds one ISO grant with a $2.00 exercise price. 60,000 options vest during 2026, worth $120,000.
The first 50,000 options vest as ISOs, using the full $100,000.
The remaining 10,000 vest as NSOs.
Her grant is now an ISO/NSO grant. From 1 January her capacity resets, and options vest as ISOs again until she reaches $100,000.
Why it matters
ISOs and NSOs are treated differently when an employee exercises and when they sell. Employees need to know which they hold before they exercise, and you need a record of which is which.
What happens next
Cake applies the split as options vest, across every grant in the system. Companies on the Pro plan also get the ISO $100K limit page under Compliance, which reports on who has split, who is approaching the limit, and who is still within it.