Let's say I have a bunch of incentive stock options (ISOs) in a company that have vested but I have not exercised yet. If I were to leave the company, I have 90 days to exercise them with ISO tax treatment. But let's say I switch from a regular employee to contractor instead, and my stock option agreement specifies that my ISOs convert to non-qualified stock options (NSOs). Do I still have 90 days to exercise my vested options as ISOs, or do they immediately become NSOs?

  • What does your contract say?
    – Kevin
    Commented Sep 17, 2018 at 18:30
  • @Kevin It's not totally clear to me because does becoming a consultant constitute "termination of employment"?
    – Craig W
    Commented Sep 17, 2018 at 20:05
  • 3
    I'm neither a lawyer nor an accountant, but I'd guess so. Either way, AFAIK there's nothing on the books about this so it's between you, your employer, and (if you can't come to an agreement) possibly a lawyer or two.
    – Kevin
    Commented Sep 17, 2018 at 21:02
  • 2
    Do you really want to risk getting this wrong? Why not ask someone in your company HR department? A member here might have had an identical experience, and give you their excellent advice, but your company handles it differently. That would be 'bad'. Commented Sep 23, 2018 at 13:10
  • @JoeTaxpayer I thought somebody might have a definitive answer from the IRS. I don't think it's up to the company because there are requirements for stock options to be treated as ISOs.
    – Craig W
    Commented Sep 24, 2018 at 13:36

2 Answers 2


FWIW, I was recently laid off, and I had 90 days to exercise my ISOs. As part of the severance package, the company offered a 3-year extension to the options, but they would immediately convert to NSOs, and I’d lose the 90-day window to exercise. So I had to come up with the cash to exercise shares before signing the extension agreement (they wouldn’t even just agree to apply the extension to a subset of shares).

It’s not clear to me how much of this was dictated by IRS regulations, and how much was just the company being lazy.


At the time of conversion from ISO to NSO for whatever reason, it is a binding conversion. You could select lots/grants to convert from ISO to NSO but the ones you convert will become NSOs instantly. So you'll benefit from the post termination exercise period extension.

If instead of termination/resignation you're going to be converted to a contractor, that would still need the ISO-to-NSO conversion. I'd imagine this too to be instantaneous. This isn't something a company can change. They usually do the default and boilerplate options to avoid getting into mess themselves.

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