This ISO AMT calculator estimates the alternative minimum tax you may owe when you exercise incentive stock options and hold the shares. The catch that surprises so many startup employees: exercising an ISO produces no regular taxable income, but the bargain element (fair market value minus strike price, times shares) is an AMT preference item — so you can owe a large tax bill on a paper gain, with no cash from selling. Enter your option details and income to see the AMT before you exercise.
Incentive stock options are designed to be tax-friendly: when you exercise, you pay nothing for regular income tax, and if you hold long enough the eventual sale is taxed at favorable long-term capital-gain rates. But there's a parallel tax system — the alternative minimum tax — that doesn't play along. Under AMT, the bargain element (the spread between the stock's value at exercise and your strike price) counts as income the year you exercise, even if you don't sell a single share. The result is the classic startup horror story: a huge tax bill on a paper gain, sometimes on illiquid private stock you can't sell to pay it.
The bargain element — also called the spread — is simple math: (fair market value at exercise − strike price) × number of shares. If you exercise 10,000 options with a $2 strike when the stock is worth $12, the spread is (12 − 2) × 10,000 = $100,000. For regular tax that $100,000 is invisible at exercise. For AMT it's added straight to your income — and that's what can push you into AMT.
AMT runs a shadow calculation alongside your regular tax. You compute AMT income (your income plus preference items like the ISO spread), subtract the AMT exemption ($90,100 single / $140,200 married for 2026), and apply the AMT rates: 26% up to about $239,100 of AMT base and 28% above. That gives your tentative minimum tax. You pay AMT only to the extent it exceeds your regular tax. The exemption phases out above $500,000 (single) / $1,000,000 (married), losing $1 for every $4 of AMT income over the threshold — which is why large exercises hit harder.
A single filer with $150,000 of other taxable income exercises 10,000 ISOs (strike $2, FMV $12) and holds.
| Step | Amount |
|---|---|
| Bargain element ($10 × 10,000) | $100,000 |
| AMT income ($150,000 + $100,000) | $250,000 |
| AMT exemption (single, no phaseout) | $90,100 |
| AMT base | $159,900 |
| Tentative minimum tax (26%) | $41,574 |
| Regular tax on $150,000 | ~$26,000 |
| Extra AMT owed from the exercise | ~$15,600 |
That roughly $15,600 is due in cash at tax time even though you sold nothing. The calculator above lets you dial down the share count to find the largest exercise that keeps you under your AMT crossover point.
AMT triggered by an ISO exercise generally creates a minimum tax credit that carries forward. In future years, when your regular tax exceeds your tentative minimum tax, you can use the credit to recover some of the AMT you paid. Because the ISO is a timing difference (regular and AMT cost bases differ), the AMT often comes back over time — but recovery can take years, so treat the AMT as real cash you must have on hand at exercise.
If you exercise and then sell the same shares before year-end, the transaction becomes a disqualifying disposition: the spread is taxed as ordinary income (not an AMT preference), and there's no lingering AMT item. You forfeit the long-term capital-gains treatment that holding would have earned, but for someone facing an unaffordable AMT bill on private, unsellable stock, a same-day cashless exercise-and-sell can be the prudent move. The trade-off is tax rate (ordinary vs. capital gains) versus liquidity and AMT risk.
The tool computes your ISO spread, adds it to your other taxable income to form AMT income, applies the 2026 AMT exemption (with the over-threshold phaseout), and taxes the AMT base at 26%/28% to get tentative minimum tax. It compares that to a simplified regular tax on your other income and reports the excess as the extra AMT from exercising. It's a planning estimate — real returns involve more interacting items — but it reliably shows the direction and rough magnitude so you can size an exercise sensibly.
Not all stock options behave like this. Non-qualified stock options (NSOs) — the more common type at larger and later-stage companies — are taxed completely differently. When you exercise an NSO, the spread is immediately ordinary income on your W-2 and subject to payroll tax, just like a bonus; there's no AMT preference because it's already in regular income. ISOs, by contrast, generate no regular-tax income at exercise but create the AMT preference this page calculates. The practical takeaway: if you hold NSOs, this calculator's AMT logic doesn't apply — your concern is ordinary-income withholding instead. If you hold ISOs, the AMT is the whole game. Many employees hold a mix and must treat each grant type separately. Always confirm from your grant agreement or Form 3921 (issued for ISO exercises) which type you actually have before planning an exercise.
A popular long-term plan with ISOs is to exercise early in the year and hold — starting both the one-year clock for long-term capital gains and the two-year-from-grant clock for a qualifying disposition, while accepting the AMT hit. The danger is the AMT trap on a falling stock: if you pay AMT on a $100,000 paper spread in one year and the stock then collapses before you sell, you can owe real cash tax on a gain that evaporated. There's partial relief — a same-year disqualifying disposition (selling before December 31 of the exercise year) erases the AMT preference, and the minimum-tax credit can recover AMT over time — but neither fully protects you if you hold across year-end into a crash. This is exactly why the calculator emphasizes sizing your exercise to your AMT crossover: exercise only what you can afford to have go to zero, and consider exercising in tranches across multiple tax years to spread both the AMT and the price risk.
The smartest ISO holders treat AMT as a budget to fill, not a wall to crash into. Your AMT crossover point is the amount of bargain element you can absorb before your tentative minimum tax exceeds your regular tax — below it, exercising costs no extra AMT at all. By exercising up to that crossover each year and stopping, you can accumulate ISO shares and start their holding-period clocks while paying little or no AMT, then repeat the following January. The calculator above is built for exactly this: lower the share count until the "extra AMT" figure drops to (or near) zero, and you've found roughly how many options you can exercise this year for free. Layer in a multi-year plan — especially before a liquidity event when the spread is still modest — and you can convert a large option position into long-term-capital-gain-eligible stock while keeping the AMT cost manageable each year.
Yes, on exercise if you hold the shares past year-end. The bargain element (FMV at exercise minus strike, times shares) is an AMT preference item, so it's added to AMT income and can trigger AMT even with no cash received.
The spread: fair market value at exercise minus your strike price, times the number of shares exercised. For ISOs this is the amount added to AMT income.
$90,100 single and $140,200 married filing jointly, phasing out above $500,000 / $1,000,000 of AMT income.
Exercise fewer shares to stay under your crossover, exercise early when the spread is small, or do a disqualifying disposition (same-year sale) to remove the AMT preference.
Often, over time, via the minimum tax credit, usable in later years when regular tax exceeds tentative minimum tax. It's largely a timing difference, though recovery can take years.
26% up to about $239,100 of AMT base and 28% above, applied after the AMT exemption; you pay AMT only to the extent it exceeds your regular tax.