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What the “One Big Beautiful Bill” Means for Your Equity Compensation Strategy

Congress recently passed the “One Big Beautiful Bill Act” (OBBBA), which makes permanent several provisions of the 2018 Tax Cuts and Jobs Act (TCJA) and introduces new changes that impact equity compensation, taxation, and long-term planning. If you receive restricted stock units (RSUs), exercise incentive stock options (ISOs), or hold Qualified Small Business Stock (QSBS), these updates have direct implications.

1. Income Tax and Withholding: Static Rates, Strategic Implications

Federal income tax brackets remain fixed at seven levels: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The flat withholding rates for supplemental income, including RSUs and bonuses, remain:

  • 22% for income up to $1 million
  • 37% for income exceeding $1 million

These withholding rates often underrepresent actual tax liability for high earners. If stock compensation pushes total income into a higher bracket, underpayment is possible. Projecting total income annually, including equity awards, is essential to determine whether estimated payments or tax withholding adjustments are warranted.

2. AMT Exposure on ISOs: Key Changes in 2026

While the TCJA significantly reduced AMT exposure for ISO exercises by raising exemption amounts, the OBBBA modifies this landscape starting in 2026:

  • AMT exemption phaseout begins at $500,000 (single) and $1 million (married)
  • The phaseout rate increases to 50%, meaning faster erosion of the exemption

This change increases the likelihood of AMT liability in high-income years, particularly when exercising ISOs. Additionally, the cap on the state and local tax (SALT) deduction increases to $40,000 through 2029 but phases out for MAGI above $600,000. This interplay may unexpectedly trigger AMT in years with large stock events.

3. Capital Gains Tax: High-Income Thresholds Still Apply

The long-term capital gains rates remain unchanged at 15% and 20%. However, the 20% rate applies once income exceeds:

  • $533,400 for single filers
  • $600,050 for joint filers

These thresholds are independent of the ordinary income brackets and should be factored into planning for stock sales and long-term equity liquidation strategies.

4. Estate and Charitable Planning: Increased Exemptions and Deduction Limits

Estate tax exemption levels are now permanently elevated:

  • $15 million (single) and $30 million (married) starting in 2026, indexed for inflation

This supports gifting and wealth transfer strategies involving appreciated stock or concentrated equity holdings.

Charitable contribution rules tighten starting in 2026:

  • A new 0.5% AGI floor means the first 0.5% of donations are not deductible
  • For top-bracket taxpayers, the benefit of itemized deductions is capped at 35%

These changes favor bunching charitable gifts in certain years or using donor-advised funds to maintain tax efficiency.

5. QSBS: Broader Eligibility and Greater Tax Savings

Significant changes under the OBBBA expand access to QSBS benefits:

  • Gross asset test for QSBS eligibility rises to $75 million
  • Maximum capital gain exclusion increases to $15 million
  • Partial exclusions now apply after shorter holding periods:
    • 50% after 3 years
    • 75% after 4 years
    • 100% after 5 years

These provisions make QSBS more attractive for early-stage employees and founders. Confirming eligibility at the time of grant or exercise is crucial.

6. Section 83(i): Deferred Taxation Remains Rare

Section 83(i) allows private company employees to defer tax on RSUs and certain options for up to five years. While the provision remains in place, its use is limited due to employer compliance requirements. If your company offers it, we can evaluate potential benefit.

7. Executive Compensation Deductibility: Still a Background Factor

Public companies remain unable to deduct performance-based compensation over $1 million for top executives. While this does not directly affect personal taxes, it may influence how equity compensation plans are designed.

Planning Considerations

  • Review projected income to evaluate if stock compensation will trigger higher tax liability
  • Time ISO exercises carefully, especially beginning in 2026 when AMT exposure may increase
  • Reassess QSBS eligibility for newly issued private company stock
  • Plan charitable giving around new AGI thresholds and deduction caps
  • Monitor equity award changes driven by employer plan design updates

As always, these tax changes should be integrated with your broader financial plan. Please reach out if you expect major equity events or want to revisit your tax strategy in light of the new law.

Disclosure:This communication is provided for informational purposes only and is not intended as legal, tax, or investment advice. The information contained herein reflects current tax law interpretations as of the date of publication and may change based on future legislation or guidance. Beacon Hill Private Wealth does not provide legal or tax advice. Please consult a qualified attorney or tax professional regarding your specific situation. All investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.