IRS guide clarifies how Monday.com employee stock options are taxed

What matters before you touch your equity

The biggest mistake employees make with stock options is assuming the grant number is the finish line. It is not. At monday.com, where equity is part of the compensation story for engineers, product managers, and sales teams, the real decision point is simpler and more expensive: what happens tax-wise if you exercise, hold, or sell at the wrong time.

That is why the IRS’s Topic 427 matters so much. It explains that when you receive an option to buy stock as payment for services, income may show up when you receive the option, when you exercise it, or when you dispose of the option or the stock you bought with it. In plain English, the calendar matters as much as the headline grant. If you treat every award the same, you can end up with a tax bill that arrives long before the cash does.

Why monday.com employees should care

monday.com is not a private startup handing out paper promises. It is a public Nasdaq-listed Israeli company headquartered at 6 Yitzhak Sadeh Street in Tel Aviv, and as of December 31, 2024 it had 50,773,337 ordinary shares outstanding. The company said in March 2025 that it had approximately 245,000 customers across more than 200 industries and in over 200 countries and territories, and by March 13, 2026 it said more than 250,000 customers worldwide were using the platform.

That growth gives equity more psychological weight. In a company scaling across New York, Denver, London, Warsaw, Sydney, Melbourne, São Paulo, and Tokyo, stock can feel like a meaningful slice of the upside. But the tax rules do not reward optimism. They reward paperwork, timing, and knowing exactly which kind of award you have.

Statutory options are treated differently from nonstatutory options

The IRS draws a hard line between statutory stock options and nonstatutory stock options. Employee stock purchase plans and incentive stock options are statutory stock options, and that classification changes when income is recognized. With statutory options, you generally do not include anything in gross income when you receive or exercise the option. That sounds simple, but it only stays simple if you understand the exceptions.

Incentive stock options can trigger alternative minimum tax in the year you exercise, even if you do not sell. Later, when you sell the stock, the gain or loss can be capital in nature, but the special holding periods matter. If those holding periods are not met, part of the gain can be taxed as ordinary income instead. That is the kind of surprise that turns an apparently winning grant into an unexpectedly expensive one.

Nonstatutory options are different. The IRS says income may arise at receipt, exercise, or disposition, depending on the facts. For workers, that means there is no safe shortcut: the grant document, the company plan, and your eventual trade date all matter.

The form that employees often miss

For people in employee stock purchase plans, Form 3922 is the paper trail that keeps the transaction from becoming a filing headache. The IRS says corporations file Form 3922 for each transfer of legal title of stock acquired under a Section 423 employee stock purchase plan. That detail sounds bureaucratic, but it is exactly the kind of document that helps employees figure out basis, timing, and how the sale should be reported later.

If you are at monday.com and you participate in a stock purchase plan, that form is not optional noise. It is part of the record that connects what you bought to what the IRS will expect you to report when you sell. The current IRS instructions for Forms 3921 and 3922 continue to reinforce that reporting framework.

The monday.com backdrop makes equity even more important

monday.com’s own filings show how material stock-based compensation is to the business. In its FY2024 Form 20-F, filed with the SEC on March 17, 2025, the company disclosed its Tel Aviv headquarters, its share count, and a balance sheet built around a fast-growing global customer base. In its February 9, 2026 earnings release for fiscal 2025, management said revenue reached $1.232 billion, up 27% year over year, with 14% non-GAAP operating margin. It also said customers with more than $50,000 in ARR represented 41% of total ARR, and it logged record net adds of customers with more than $100,000 in ARR.

That growth matters for two reasons. First, it helps explain why equity remains part of the employee value proposition in a competitive SaaS market. Second, it shows why taxes can get messy fast. A rising stock price makes the upside feel obvious, but the tax treatment can still be highly specific to the award type and to whether you have actually sold anything.

How share-based compensation shows up inside the company

The company’s filings also make clear that stock-based pay is not just an employee issue, but a financial reporting issue. monday.com said GAAP operating income was difficult to forecast because share-based compensation expense can be highly variable and significant. It also disclosed that non-cash charges in FY2024 primarily consisted of share-based compensation, charitable share contribution to the monday.com Foundation, and depreciation and amortization.

One example stands out: monday.com disclosed a 2024 equity grant of $17.9 million, representing the fair market value of 68,000 ordinary shares contributed to the monday.com Foundation. That is a reminder that equity can move through the company in more than one direction. It can reward employees, support philanthropy, and still hit the income statement as a cost.

The practical move for employees

If you work at monday.com, the safest approach is not to treat your equity as a vague future windfall. Treat it as a financial instrument with rules. Before you exercise, sell, or decide to hold, you need to know:

• whether your award is statutory or nonstatutory
• whether it is an incentive stock option or part of an employee stock purchase plan
• when the taxable event happens
• whether alternative minimum tax could apply
• whether Form 3922 or other plan documents will matter at filing time

That is the real lesson from the IRS guidance. The upside from equity can be real, but it is never just about the stock price. For monday.com employees, the difference between a smart move and a painful one often comes down to knowing the tax clock before the market clock catches up.