# The 90-day exercise window

> Why departing employees get 90 days: the ISO three-month rule, and what happens after it.

Source: https://lopifi.com/learn/employee-stock-options-iso-vs-nso/post-termination-exercise-window
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What happens to stock options when an employee leaves?** Why departing employees get 90 days: the ISO three-month rule, and what happens after it.

An ISO holder must be an employee from the grant until three months before exercising. So a departing employee who wants ISO treatment has three months to exercise; options exercised later are taxed as NSOs. That is where the common 90-day [post-termination exercise period](https://lopifi.com/md/glossary/post-termination-exercise-period) comes from. A plan may allow longer — the options remain valid, but lose ISO treatment after the three months.

> “at all times during the period beginning on the date of the granting of the option”

— [26 U.S.C. §422(a)(2)](https://www.law.cornell.edu/uscode/text/26/422), An ISO holder must be an employee until three months before exercise

- **June 30, 2028** — Priya Shah's last day at Northwind; her vested options stop vesting
- **September 30, 2028** — Last day to exercise and keep ISO treatment

An illustrative departure.

> **Exercise costs cash, and maybe tax.** Exercising means paying the strike for every share. The ISO spread at exercise is not regular income, but it can trigger alternative minimum tax; an NSO's spread is ordinary income. Employees deciding in a 90-day window need the numbers, and the company should send them early.

> “you generally don't include any amount in your gross income when you receive or exercise the option”

— [IRS Topic No. 427, Stock options](https://www.irs.gov/taxtopics/tc427), ISOs at grant and exercise, NSOs at exercise, and the AMT

## Where this page's rules come from

- [26 U.S.C. §422(a)(2)](https://www.law.cornell.edu/uscode/text/26/422) — An ISO holder must be an employee until three months before exercise (statute)
- [IRS Topic No. 427, Stock options](https://www.irs.gov/taxtopics/tc427) — ISOs at grant and exercise, NSOs at exercise, and the AMT (irs)

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Part of:** [Employee stock options: ISOs, NSOs and RSUs](https://lopifi.com/md/learn/employee-stock-options-iso-vs-nso) — 3 min
- **Terms taught:** [Post-termination exercise period](https://lopifi.com/md/glossary/post-termination-exercise-period), [Incentive stock option](https://lopifi.com/md/glossary/incentive-stock-option)
- **Previous:** [The $100,000 ISO limit and early exercise](https://lopifi.com/md/learn/employee-stock-options-iso-vs-nso/iso-100000-limit-and-early-exercise)
- **Next:** [RSUs](https://lopifi.com/md/learn/employee-stock-options-iso-vs-nso/rsus-at-later-stage)
- **The course:** https://lopifi.com/md/learn