Executive Summary
Does a down round reduce taxes on RSUs I already vested?
Generally no—RSU income is fixed at vest based on FMV then. A later valuation decline affects the shares’ market value (capital loss risk when you sell), not the wage income already recognized.
How does a lower 409A help stock options?
For new grants, a lower FMV typically means a lower strike—smaller future spread. For outstanding underwater options, economics may still be poor until repriced or until company value recovers.
What is the biggest ISO planning change after a reset?
If you exercise ISOs after FMV declines, the bargain element (FMV − strike) may be smaller—potentially reducing AMT. Prior exercises at higher FMV already created their own AMT profile and credits.
Figure 1: Forward-looking effect on new grants—past tax years are not rewritten.
What a 409A Reset Actually Updates
| Item | Typically updated? |
|---|---|
| New option strike prices | Yes (for new grants) |
| Past RSU vests | No |
| Already-exercised ISO/NSO | No retroactive tax redo |
| AMT credit carryforward | Still tracked—see AMT credit guide |
Figure 2: Why “409A dropped” does not mean “my old W-2 changes.”
Underwater Options: Strategic Angles (Not Advice)
| Path | Notes |
|---|---|
| Wait | No tax on exercise if you don’t exercise |
| Repricing / exchange | Corporate action; may affect ISO status |
| Leave job | Exercise windows—leaving guide |
Worked Example (Illustrative)
Assume FMV falls from $10 to $4 for new grants:
- New options may strike near $4, shrinking future spread vs $10 strikes for older grants (if any remain).
Figure 3: Underwater options are an economic problem before they are a tax problem.
Related tools
Disclaimer
Educational only—consult a tax advisor for repricing and 409A questions.
Primary sources
| Source | URL |
|---|---|
| IRC §409A | https://www.law.cornell.edu/uscode/text/26/409A |