Equity compensation
How ISOs trigger the alternative minimum tax
When you exercise an incentive stock option (ISO) and hold the shares, you pay no regular income tax — that is the headline benefit. But the difference between the fair market value at exercise and your strike price, called the bargain element, is added back to income under the alternative minimum tax (AMT) system. Many engineers at startups discover this only when a large April tax bill arrives for stock they never sold.
The 2026 AMT formula in plain English
The AMT runs a parallel tax calculation. You add the ISO bargain element to your taxable income to get alternative minimum taxable income (AMTI), subtract the AMT exemption, then apply two flat rates: 26% on the first $244,500 of the AMT base and 28% above it (2026 figures). You owe AMT only to the extent that result — the tentative minimum tax — exceeds your ordinary tax.
| 2026 AMT figure | Single | Married filing jointly |
|---|---|---|
| AMT exemption | $90,100 | $140,200 |
| Exemption phase-out begins | $500,000 | $1,000,000 |
| 26% → 28% rate breakpoint | $244,500 of AMT base ($122,250 if married filing separately) | |
Source: IRS Revenue Procedure 2025-32 (2026 AMT amounts) and IRC §55. The One Big Beautiful Bill Act reset the exemption phase-out thresholds to $500,000 / $1,000,000 for 2026.
The AMT credit — you may get it back
AMT paid because of an ISO exercise generally becomes a minimum tax credit you can carry forward and use in future years when your regular tax exceeds your tentative minimum tax. It is a timing difference, not always a permanent cost — but it can tie up cash for years. Model a same-year "disqualifying disposition" (sell before the AMT hits) against holding for long-term capital gains with the capital gains tax calculator.
ISOs differ sharply from non-qualified options, which are taxed as ordinary wages at exercise — compare the two with the NSO stock option tax calculator, and if you also receive restricted stock, see the RSU tax calculator.
Questions
ISO AMT Calculator 2026 FAQ
Do I owe tax when I exercise ISOs?
For regular tax, no — exercising and holding incentive stock options is not a taxable event. However, the bargain element (fair market value minus strike price, times shares) is a preference item for the alternative minimum tax. If your tentative minimum tax exceeds your regular tax, the difference is AMT you owe for that year, even though you have not sold any shares.
What is the 2026 AMT exemption?
For 2026 the AMT exemption is $90,100 for single filers and $140,200 for married filing jointly (IRS Rev. Proc. 2025-32). The exemption phases out at 25 cents per dollar once alternative minimum taxable income exceeds $500,000 (single) or $1,000,000 (married), under the thresholds reset by the One Big Beautiful Bill Act.
What AMT rate applies to my ISO bargain element?
The AMT uses two rates: 26% on the AMT base up to $244,500 and 28% on amounts above that (2026). The base is your AMTI minus the exemption. You only actually pay AMT to the extent the resulting tentative minimum tax is larger than your ordinary income tax.
Can I get the AMT back later?
Often, yes. AMT triggered by exercising and holding ISOs usually creates a minimum tax credit (Form 8801) that you carry forward and apply in later years when your regular tax is higher than your tentative minimum tax. It is frequently a timing difference rather than a permanent extra tax, though it can lock up cash in the meantime.
- Sources: IRS Rev. Proc. 2025-32 (2026 AMT exemption & phase-out) · IRS Form 6251 instructions (Alternative Minimum Tax) · IRS Topic No. 427 (Stock Options) · IRC §§55, 56, 422.
- 🔄 Last updated June 27, 2026 · Tax year 2026
Disclaimer: This is an educational estimate, not tax advice, and the operator is not an attorney or CPA. AMT depends on many items (other preferences, credits, state add-backs) this tool does not model. Confirm your exercise strategy with a qualified tax professional before acting.
← Back to the full salary calculator · Related: NSO tax · 83(b) election · RSU tax · Capital gains · NIIT 3.8% · Marginal rate