AMT / ISO calculator

Why ISOs and AMT collide

Incentive stock options (ISOs) get favorable tax treatment, but there is a trap that catches employees every year. When you exercise and hold the shares past the end of the calendar year, the difference between the fair market value and your strike price - the bargain element - does not appear on your regular tax return. But it is added to your income under the parallel alternative minimum tax (AMT) system. If the AMT you calculate ends up higher than your regular tax, you pay the difference - a large, surprising bill in a year you may not have sold a single share.

How the AMT calculation works

This ISO AMT calculator runs the two-track math the IRS uses:

1. Bargain element = (fair market value − strike price) × shares. This is added to your alternative minimum taxable income (AMTI).
2. AMT exemption. For 2026, subtract about $90,100 (single) or $140,200 (married). The exemption phases out above $500,000 (single) or $1,000,000 (joint) at 50 cents per dollar - a threshold that dropped sharply for 2026, so high earners lose the exemption faster than before.
3. Tentative minimum tax (TMT) = 26% of AMTI up to about $244,500, and 28% above it.
4. AMT due = TMT minus your regular tax. If it is positive, you owe it.

Worked example

Say you exercise 10,000 ISOs with a $1 strike at an $11 fair market value, and you have $200,000 of other income (single filer):

• Bargain element: ($11 − $1) × 10,000 = $100,000
• Regular federal tax on $200,000: about $36,734
• AMTI: $200,000 + $100,000 = $300,000 (below the phaseout, so the full $90,100 exemption applies)
• AMT base: $300,000 − $90,100 = $209,900
• Tentative minimum tax: 26% × $209,900 = $54,574
• AMT due: $54,574 − $36,734 = $17,840

So exercising and holding those shares costs about $17,840 in AMT this year, on top of the cash to exercise - even though you have sold nothing.

Finding your AMT crossover

The most useful number is your AMT crossover - how many shares you can exercise before AMT kicks in at all. Lower the share count in the calculator until the AMT due drops to zero; that is the amount you can exercise “for free” this year. Many people exercise up to the crossover annually and spread the rest across future tax years to keep each year’s bill at zero.

Strategies to manage the bill

• Exercise early. When FMV is close to your strike (right after a grant or a 409A reset), the bargain element is small and so is the AMT.
• Spread across years. Exercise in January so you have the full year to decide whether to hold (locking in the ISO clock) or sell to undo the AMT.
• Same-day sale. Selling in the same year is a disqualifying disposition: the spread is taxed as ordinary income instead of creating an AMT preference. You lose the long-term capital gains treatment but avoid a large AMT bill on shares you have not cashed out.
• Recover the credit. AMT paid on ISOs usually creates a minimum tax credit you reclaim in later years when regular tax exceeds your TMT - so it is often a timing cost, not a permanent one.

Common mistakes

• Exercising a big block late in December with no time to course-correct.
• Forgetting that holding past year-end is what triggers the AMT preference.
• Ignoring state AMT, which some states impose on top of the federal figure.

This is a simplified federal model - prior-year credits and other preference items can change the result, so confirm a large exercise with a CPA. To see the all-in cash cost of exercising, use the ISO exercise tax calculator; for NSOs, which are taxed differently, see the stock option tax calculator.