An Incentive Stock Option (ISO) is a type of employee stock option that allows workers to purchase shares of their company's stock at a predetermined price, known as the exercise price. ISOs are designed to provide tax benefits to employees, as they can potentially avoid paying taxes on the difference between the exercise price and the market price at the time of exercise, provided certain conditions are met. To qualify for these tax benefits, employees must hold the shares for a specific period, typically one year after exercising the option and two years after the option is granted. ISOs are subject to specific regulations under the Internal Revenue Code and are often part of a company's compensation package to incentivize employees to contribute to the company's success.