The difference is when you exercise NSOs, you also have to pay withholding tax (ordinary income tax rate) to the company who then pays it to the IRS.<p>For ISOs, you don&#x27;t have to pay tax at exercise, but you may be subject to Alternative Minimum Tax (AMT) especially if you have a large spread between your strike price and the fair market value at the time of exercise. (<a href="http:&#x2F;&#x2F;employeestockoptions.com&#x2F;amttax&#x2F;" rel="nofollow">http:&#x2F;&#x2F;employeestockoptions.com&#x2F;amttax&#x2F;</a> for more information about AMT)