ISO AMT Calculator (2026)

When you exercise incentive stock options (ISOs), you don't owe regular income tax — but the bargain element (the spread between your strike price and the current 409A/FMV) is added to your Alternative Minimum Tax income. Depending on your income and the size of the spread, you may owe significant AMT even though you haven't sold a single share.

This calculator tells you: (1) how much AMT you'll owe if you exercise a given number of shares, and (2) the maximum shares you can exercise this year with zero AMT.

Why ISOs create AMT — and why it can be a trap

Regular income tax and the Alternative Minimum Tax run on parallel tracks. You calculate both, then pay whichever is higher. ISOs get favorable regular tax treatment at exercise — no ordinary income recognized — but the bargain element is a preference item that inflates your AMT income (AMTI).

The result: you can owe thousands in AMT on "phantom income" you never received in cash. The most dangerous scenario is exercising a large block of ISOs late in the year when the stock price has already risen, only to see the price crash before you can sell. You end up owing the IRS for a gain that no longer exists in your account.

Example: You exercise 50,000 ISOs with a $1 strike when the 409A is $20. Bargain element: $950,000. If your regular income is $300K, your AMTI including the spread is roughly $1.25M. After the AMT exemption (already phased out at that income level), you could owe $200K+ in AMT — due April 15, whether or not the stock has since dropped.

The "safe exercise" strategy

The maximum shares you can exercise without triggering AMT is the number of shares where your tentative minimum tax exactly equals your regular tax. Below that number: no AMT. Above it: AMT applies to every additional share.

The safe amount depends heavily on your other income. A senior engineer earning $400K has less ISO exercise room than an early-career employee earning $150K, because the higher regular income raises the regular tax (which must be exceeded by TMT before AMT applies) but the AMT exemption phases out faster at higher AMTI.

Disqualifying dispositions: the alternative path

If you exercise and sell in the same calendar year, you have a disqualifying disposition. The bargain element at exercise becomes ordinary income — it shows up on your W-2 and you pay regular income tax on it, not AMT. There's no phantom income problem because you have actual cash from the sale.

When does a disqualifying disposition make sense?

• Your AMT on a qualifying exercise exceeds your regular tax on a disqualifying disposition. This can happen when your income is moderate enough that the spread, taxed at ordinary rates, produces less tax than the AMT calculation would.
• The stock is volatile or pre-liquid. Exercising and holding illiquid startup shares while owing AMT on the spread is a concentrated bet. If you can't afford to pay the AMT and hold, a same-year sale removes the risk.
• You're near an IPO lock-up window. Employees often exercise ISOs right after IPO to start the long-term capital gains clock — but if the share price has risen dramatically, the AMT cost of holding may exceed the tax savings from qualifying disposition. Run the numbers.

The AMT credit: recovering what you paid

AMT paid on ISO exercises is not lost money. It creates an AMT credit carryforward (Form 8801) that you can use to reduce regular tax in future years — specifically in years when your regular tax exceeds your tentative minimum tax (i.e., when you no longer owe AMT). The credit is dollar-for-dollar: $30,000 of AMT paid becomes $30,000 of future regular tax reduction.

For a startup employee who exercises ISOs and then has a big ordinary-income year (acquisition, signing bonus, high RSU vest) with no AMT preference items, the credit can be worth the full AMT paid. The challenge is the timing: you may wait years before recovering it, and you don't recover it in years you still owe AMT.

What this calculator doesn't cover

• State AMT. California has its own AMT-equivalent calculation. CA AMT is 7% on the same preference items and uses a $0 exemption for high earners. Most other states follow federal AMT; a few have no AMT at all.
• Other AMT preference items. Private activity bond interest, accelerated depreciation on passive activities, etc. If you have significant income from these sources, your actual AMT may be higher than shown.
• Net Investment Income Tax (NIIT). If you do a qualifying disposition later and realize long-term capital gains, those may be subject to 3.8% NIIT if your MAGI exceeds $200K (single) / $250K (MFJ). Not modeled here.
• The $100K ISO cap. ISOs are capped at $100,000 FMV at grant becoming exercisable in any year; excess converts to NSOs. If your grants cross this threshold, you may have NSOs mixed in — those are taxed as ordinary income at exercise, not AMT.