How to Calculate Your AMT on Stock Options

What Is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) is a parallel tax system that runs alongside the regular income tax. It was designed to ensure that high-income taxpayers can't use deductions and exclusions to avoid paying any tax. For ISO holders, the AMT is often the largest unexpected cost of exercising stock options.

Here's the key thing to understand: AMT on ISO exercises is usually a timing difference, not a permanent tax. The AMT you pay generates a credit that you can carry forward and use to reduce your regular tax in future years. But you still need the cash to pay it upfront.

The AMT Calculation, Step by Step

Step 1: Calculate Your Alternative Minimum Taxable Income (AMTI)

Start with your regular taxable income (after the standard deduction), then add back AMT adjustment items:

AMTI = Regular Taxable Income + ISO Spread + Other AMT Adjustments

The ISO spread (FMV at exercise minus strike price, multiplied by number of shares) is the big one for stock option holders. Other AMT adjustments include certain state and local tax deductions, but these are less relevant post-Tax Cuts and Jobs Act.

Step 2: Apply the AMT Exemption

The AMT exemption reduces your AMTI before the AMT rates apply. For 2025:

• Single: $88,100 exemption
• Married Filing Jointly: $137,000 exemption

But the exemption phases out at higher incomes. The phaseout starts at:

• Single: $609,350
• Married Filing Jointly: $1,218,700

For every dollar of AMTI above the phaseout threshold, the exemption is reduced by 25 cents (50 cents in 2026 under the OBBBA changes). This means the exemption is completely eliminated at high enough AMTI levels.

Step 3: Calculate the AMT Base

AMT Base = AMTI - AMT Exemption (after phaseout)

Step 4: Apply the AMT Rates

The AMT uses a two-bracket system:

• 26% on the first $232,600 of AMT base (single, 2025)
• 28% on amounts above $232,600

This gives you the Tentative Minimum Tax.

Step 5: Compare to Regular Tax

AMT Owed = max(0, Tentative Minimum Tax - Regular Tax)

You only owe AMT if the tentative minimum tax exceeds your regular tax. If your regular tax is already high enough, you may owe no AMT at all — the ISO spread increases the tentative minimum tax but doesn't change your regular tax.

A Concrete Example

Let's say you're single, earn $200,000 in W-2 income, and exercise 10,000 ISOs with a $1 strike price and $10 FMV.

1. Regular taxable income: $200,000 - $15,200 (standard deduction) = $184,800
2. Regular federal tax: ~$37,400
3. ISO spread: (10 - 1) x 10,000 = $90,000
4. AMTI: $184,800 + $90,000 = $274,800
5. AMT exemption: $88,100 (no phaseout, since AMTI is below $609,350)
6. AMT base: $274,800 - $88,100 = $186,700
7. Tentative minimum tax: $186,700 x 26% = $48,542
8. AMT owed: $48,542 - $37,400 = $11,142

So exercising those ISOs would trigger $11,142 in AMT — on top of the $10,000 exercise cost. Total cash needed would be $21,142 plus any state taxes.

The AMT Credit Carryforward

Here's the silver lining: the $11,142 of AMT paid becomes a Minimum Tax Credit that carries forward indefinitely. In future years, if your regular tax exceeds your tentative minimum tax, you can use this credit to reduce your regular tax liability.

This credit is typically recovered when you sell the shares (since the sale creates regular tax liability) or in subsequent years when you don't have ISO exercises creating AMT exposure.

2026 AMT Changes Under OBBBA

The One Big Beautiful Bill Act (OBBBA) made significant changes to AMT starting in 2026:

• Phaseout rate doubles from 25% to 50% — this means the exemption disappears twice as fast
• Phaseout thresholds drop to $500,000 (single) and $1,000,000 (MFJ)
• The exemption amounts and rate thresholds also change

These changes mean that ISO exercises in 2026 and beyond will trigger more AMT for many taxpayers, particularly those with large exercises or high incomes. Use our calculator to compare 2025 vs 2026 scenarios.

Strategies to Minimize AMT

1. Spread Exercises Across Years

Instead of exercising all options in one year, spread them across 2-3 tax years. Each year's AMT exemption can shelter some of the spread.

2. Exercise Early in the Year

If you exercise in January, you have until April of the following year to pay the AMT — giving you 15+ months to plan.

3. Consider Exercising When FMV Is Lower

If you exercise shortly after a 409A valuation (when FMV is freshly set), the spread may be smaller. Waiting for the next valuation could increase your AMT.

4. Same-Year Sale (Disqualifying Disposition)

If you exercise and sell in the same calendar year, the transaction is treated as a disqualifying disposition — the spread becomes ordinary income instead of an AMT adjustment. No AMT, but you lose the long-term capital gains benefit.

5. Use the Calculator

There's no substitute for running the actual numbers. Our calculator computes your exact AMT using the current-year tax tables, including exemption phaseouts and the 26%/28% rate split.