AMT calculator: estimate your alternative minimum tax for 2026

The tax bill arrives in April. The ISO exercise happened last October. And somewhere in between, nobody ran the numbers.

That’s the AMT trap. A startup employee in California exercises 10,000 incentive stock options at a $1 strike price when the 409A valuation is $6. No shares sold. No cash in hand. But the IRS still sees $50,000 in “income” and sends a bill for it. Running an AMT calculator before exercising is the difference between a planned tax payment and a shock that wipes out a savings account.

This guide explains how the alternative minimum tax works on ISO stock options, how to calculate AMT step by step, and what the 2026 numbers actually mean for startup employees and tech workers.

What is the AMT and what does it do?

The alternative minimum tax is a parallel tax system that runs alongside the regular federal income tax. Congress created it in 1969 to prevent high-income individuals from using preferential deductions to eliminate their tax bill entirely.

Here’s how it works in practice. The IRS makes everyone calculate their taxes twice: once under the regular system, and once under AMT rules. Whichever number is higher is what gets paid.

For most W-2 employees, the regular tax always wins and AMT never comes up. But for anyone exercising incentive stock options (ISOs), the math can flip fast.

Why ISOs trigger AMT

Under the regular tax system, exercising ISOs is not a taxable event. A startup employee can exercise options, hold the shares, and owe nothing in regular income tax yet.

AMT treats that same exercise differently. The spread (the difference between the 409A fair market value and the strike price, multiplied by shares exercised) gets added to Alternative Minimum Taxable Income (AMTI). That addition can push the AMT calculation above the regular tax, triggering a real cash obligation on gains that exist only on paper. Equity professionals call this “phantom income.”

For 2026, the federal AMT rates are 26% on AMTI up to a threshold and 28% above it applied after subtracting the AMT exemption amount.

2026 AMT exemptions and phase-out thresholds

Filing status	AMT exemption	Phase-out begins	Phase-out rate
Single	$90,100	$500,000	50 cents per $1 over threshold
Married filing jointly	$140,200	$1,000,000	50 cents per $1 over threshold

One important change: the One Big, Beautiful Bill (OBBBA), signed in July 2025, made these higher exemption amounts permanent. The phase-out rate also doubled from 25 cents to 50 cents for every dollar above the threshold starting in 2026. High-income taxpayers lose the exemption faster now but for most startup employees exercising a typical ISO grant, the higher permanent exemptions are good news.

How to use the AMT calculator (step-by-step)

A free AMT calculator needs 4 inputs. That’s it.

Required inputs:

• Shares exercised — the number of ISOs exercised in the tax year
• Strike price — the price paid per share (also called exercise price)
• 409A value (fair market value) — the per-share FMV on the date of exercise
• Filing status — single, married filing jointly, etc.
• Annual salary/wages — W-2 income for the year

Most calculators also ask for state of residence, since California, Iowa, Minnesota, and Colorado all have their own AMT rates on top of federal.

Worked example: tech employee in Austin, Texas

Say someone earns $120,000 per year as a software engineer at a Series B startup. They exercise 8,000 ISOs with a $2 strike price when the 409A value is $11 per share.

Step 1 — Calculate the spread: Spread = (FMV − Strike Price) × Shares exercised ($11 − $2) × 8,000 = $72,000

Step 2 — Calculate AMTI: Regular income + ISO spread = AMTI $120,000 + $72,000 = $192,000

Step 3 — Subtract the AMT exemption (single filer in 2026): $192,000 − $90,100 = $101,900

Step 4 — Apply AMT rate (26% for most): $101,900 × 26% = $26,494 tentative minimum tax

Step 5 — Calculate regular tax on $120,000 (approximate, standard deduction applied): Roughly $18,000–$19,000 depending on deductions.

Step 6 — AMT owed = Tentative minimum tax − Regular tax: $26,494 − $18,500 ≈ $7,994

So exercising those 8,000 options creates roughly an $8,000 AMT bill due at filing even though no shares were sold. Texas has no state income tax, so there’s no additional state AMT layer here.

That $8,000 doesn’t disappear forever. The IRS issues an AMT credit (tracked on Form 8801) that can offset regular tax in future years when AMT doesn’t apply typically the year shares are actually sold.

Understanding your results

An AMT calculator returns one of two outcomes.

AMT > regular tax: The difference is owed to the IRS at filing. This is a real cash obligation. No shares need to be sold for the bill to exist.

AMT ≤ regular tax: No additional AMT is owed. The ISO exercise had no AMT consequence for that year.

What the AMT credit means

When AMT is paid on ISO exercises, the IRS tracks that amount as a credit on Form 8801. In future years where regular tax exceeds tentative minimum tax (usually the year the stock is sold), that credit can be applied to reduce the regular tax bill. Think of it as a forced loan to the IRS paid now, recovered later, in chunks.

The catch: AMT credits can only be used in years when the taxpayer is not also subject to AMT. Unused credits carry forward indefinitely.

2026 AMT rates by income level

AMTI after exemption	AMT rate
Up to ~$239,100 (approximate)	26%
Above ~$239,100	28%

These brackets apply to the federal calculation. State AMT rates (where applicable) stack on top.

Real-world use cases

1. Early startup employee in Seattle, Washington

A product manager joins a seed-stage startup and receives 50,000 ISOs at a $0.50 strike price. Three years later, the company closes a Series C and the 409A value jumps to $8. They decide to exercise 20,000 shares before a potential IPO.

Spread: ($8 − $0.50) × 20,000 = $150,000

On a $95,000 salary, this creates significant AMT exposure potentially $20,000–$30,000 depending on deductions. Washington has no state income tax, which helps. But the cash to pay that bill has to come from somewhere, since no shares were sold.

2. Senior engineer at a pre-IPO company in San Francisco, California

A $160,000 base salary. 15,000 ISOs exercised at a $3 strike when the 409A is $14. The spread: $165,000. California adds a 7% state AMT on top of the federal calculation. Total AMT exposure on this exercise could clear $40,000.

This is exactly the scenario where running an AMT calculator before exercising not after changes the financial outcome. The engineer might choose to exercise in tranches across 2 tax years to reduce annual AMT exposure.

3. Startup founder leaving the company

When an employee leaves, vested ISOs typically must be exercised within 90 days or they expire. A founder in this situation often has a large ISO grant and a 409A valuation that has grown since the original grant. Exercising everything in one year to beat the deadline can create a massive AMT bill on paper gains that may never materialize if the company doesn’t exit.

4. Employee with a big salary year

An engineer who also received a large year-end bonus or RSU vest in the same year they exercised ISOs. Higher ordinary income raises the regular tax calculation but the AMT spread from ISOs still gets added on top. Running the numbers both ways (exercise this year vs. next year) often reveals a meaningful difference.

Common mistakes and misconceptions

Thinking “I didn’t sell anything, so I don’t owe taxes”

This is the most expensive misconception in startup equity. Under AMT rules, exercising and holding ISOs creates a taxable event. The cash is due at filing regardless of whether the shares were sold.

Ignoring the 409A value at the time of exercise

The AMT spread is calculated at the exact 409A valuation on the date of exercise not at grant, not at sale. A 409A valuation that rose significantly between grant and exercise creates a larger spread and a higher AMT bill.

Assuming AMT only hits high earners

The 2026 exemptions ($90,100 single, $140,200 MFJ) are fairly generous. But an employee earning $80,000 who exercises a large ISO grant with a $100,000 spread can absolutely trigger AMT. Income level alone doesn’t predict exposure the size of the ISO spread does.

Conflating ISOs with NSOs

Non-qualified stock options (NSOs) work differently. NSO exercises generate ordinary income immediately at exercise — taxed like a paycheck, with no AMT adjustment. ISOs defer that income recognition for regular tax purposes but route it through AMT instead. An employee who receives a mix of ISOs and NSOs in the same year needs to model both separately.

Skipping the state AMT calculation

The federal AMT calculator gives one number. California, Iowa, Minnesota, and Colorado each add their own state AMT layer. A Californian’s total AMT exposure can be 7 percentage points higher than a Texan’s on the exact same ISO exercise.

Assuming the AMT credit covers everything immediately

The credit is real, but recovery is slow. It can only be applied in years not subject to AMT. For someone who exercises ISOs across multiple years, the credit may sit unused for a while.

When not to rely only on this calculator

An AMT calculator produces an estimate, not a tax return.

Several factors can make the actual AMT liability higher or lower than what any calculator shows:

Other AMT adjustments beyond ISOs. The AMT system disallows certain deductions allowed under regular tax including some itemized deductions and depreciation methods. For anyone with complex deductions, the AMTI calculation involves more than just the ISO spread.

State tax interactions. Some states conform to federal AMT rules; others don’t. California has its own AMT calculation that doesn’t mirror the federal one exactly. A calculator that only runs federal numbers can understate total exposure for California residents significantly.

The AMT exemption phase-out. For single filers with AMTI above $500,000, or joint filers above $1,000,000, the exemption starts phasing out at 50 cents per dollar. High-income executives exercising large grants will find that the full exemption doesn’t apply and a basic calculator may not model this correctly.

Multiple tax years of ISO exercises. Exercising ISOs across multiple years, with AMT credits accumulating and potentially applying in between, requires modeling that goes beyond a single-year estimate.

Disqualifying dispositions. If ISO shares are sold in the same calendar year as exercise, that’s a disqualifying disposition — the AMT adjustment disappears and the gain is taxed as ordinary income instead. The right tax treatment depends on the exact timing of exercise and sale.

When to bring in a tax professional: Anyone with an AMTI above $300,000, multiple years of ISO exercises, California residency, or a pending liquidity event should work with a CPA or tax advisor who specializes in equity compensation not just a general preparer. The IRS’s own guidance recommends consulting a professional for complex AMT situations (IRS Topic No. 566).

Tips to get the most accurate results

Use the 409A value on the date of exercise, not the current value. The spread is locked at the day of exercise. If a company issued a new 409A valuation two weeks before the exercise date, the older number applies. Check the exact date on the company’s valuation report.

Run the calculator before exercising, not after. AMT planning is most useful when it can actually change the decision how many shares to exercise, in which tax year, and whether to trigger a disqualifying disposition by selling immediately.

Model multiple exercise amounts. Exercising 5,000 shares versus 10,000 shares in the same year produces very different AMT outcomes. Run the calculator at several different exercise quantities to find a number that keeps the AMT bill manageable.

Account for other income in the same year. A large bonus, an RSU vest, or a spouse’s income all affect the regular tax calculation and therefore how much AMT is actually owed. Input total household W-2 income, not just base salary.

Check your state. If the calculator has a state selector, use it. For California residents especially, the state AMT layer is not optional.

Keep Form 3921. Employers are required to send this form in January showing the number of ISOs exercised, the strike price, and the FMV at exercise. It’s the source document for any AMT calculation and is essential for filing Form 6251.

Frequently asked questions

What is an AMT calculator used for?

An AMT calculator estimates how much alternative minimum tax someone will owe after exercising incentive stock options. It uses the ISO spread — the difference between the 409A fair market value and the strike price, multiplied by shares exercised — to calculate Alternative Minimum Taxable Income (AMTI), apply the 2026 exemption, and compare the result against regular tax. The difference, when positive, is the AMT owed.

How do I calculate AMT on ISO stock options?

The basic formula: (FMV at exercise − Strike price) × Shares exercised = ISO spread. Add the spread to regular taxable income to get AMTI. Subtract the AMT exemption ($90,100 for single filers in 2026). Multiply by the applicable AMT rate (26% or 28%). The result is tentative minimum tax. Subtract regular income tax. If the difference is positive, that’s the AMT owed.

Is the AMT calculator free?

Yes. Most AMT calculators designed for ISO stock option planning are free to use without creating an account. Carta, ESO Fund, and Equity Simplified each offer free ISO AMT calculators updated for 2026.

What is the AMT exemption for 2026?

For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married filing jointly. These amounts were made permanent by the One Big, Beautiful Bill (OBBBA) signed in July 2025. Phase-out begins at $500,000 (single) and $1,000,000 (joint), with a 50% phase-out rate.

Do RSUs trigger AMT?

No. RSUs are taxed as ordinary income at vesting under both the regular tax system and AMT. Because RSU income is already included in regular taxable income, it doesn’t create a separate AMT adjustment. ISOs are the primary driver of AMT for startup employees not RSUs.

What is the difference between ISO and NSO for AMT purposes?

ISOs can trigger AMT because the spread at exercise is excluded from regular income but included in AMTI. NSOs are taxed as ordinary income at exercise —that income appears in both regular tax and AMT calculations the same way, so NSO exercises don’t create an AMT-specific adjustment. In short: ISOs = potential AMT exposure. NSOs = ordinary income tax at exercise, no AMT adjustment.

What happens to AMT paid if I later sell the shares?

The IRS tracks AMT paid on ISO exercises as a credit on Form 8801, called the Minimum Tax Credit (MTC). In future years when regular tax exceeds tentative minimum tax typically the year the shares are sold the credit can offset the regular tax bill. This effectively recovers the AMT over time. The credit carries forward indefinitely if unused.

What is the 409A value and why does it matter for AMT?

A 409A valuation is an independent appraisal of a private company’s common stock fair market value, required by the IRS for setting stock option strike prices. For AMT purposes, the 409A value on the date of exercise determines the spread. A higher 409A value means a larger spread and potentially more AMT exposure. Employees should request the current 409A report from their company before deciding when to exercise.

What is “iso exercise” and when does it trigger AMT?

ISO exercise means purchasing shares by paying the strike price. AMT is triggered when ISOs are exercised and held through the end of the tax year the spread counts as AMTI. If the shares are sold in the same calendar year as exercise (a disqualifying disposition), AMT does not apply. Instead, the gain is taxed as ordinary income. Selling and exercising in the same year simplifies the tax treatment but gives up any future long-term capital gains benefit on that appreciation.

Can I owe AMT if my income is under $90,100?

The $90,100 exemption applies to AMTI which already includes the ISO spread. So someone earning $60,000 in W-2 wages who exercises a $50,000 ISO spread has AMTI of $110,000, well above the exemption. Yes, AMT is possible even with a modest salary if the ISO spread is large enough.

What is “exposure” in the context of AMT?

AMT exposure refers to the potential AMT liability created by an ISO exercise. Estimating exposure before exercising allows employees to decide how many shares to exercise in a given year, whether to trigger a disqualifying disposition, or how to plan cash flow to cover the expected tax bill.

How does “funding” relate to AMT on ISOs?

Some firms including ESO Fund offer non-recourse financing to cover the cost of ISO exercises and associated AMT bills. This lets employees exercise options without putting up their own cash. If the company doesn’t succeed, the loan is forgiven because it’s non-recourse. It’s a niche product, but it’s real, and it exists specifically because the AMT-on-ISOs cash flow problem is that common.

Share your experience

Have you used an AMT calculator before exercising ISOs? Did the estimate match what you actually owed? Stories from employees who’ve navigated the AMT in either direction help others make better decisions. Drop a comment below with what you wish you’d known before exercising.

How this article was created

This article draws on IRS guidance (IRS Topic No. 566 on AMT), official 2026 AMT figures from IRS Revenue Procedures, and information from Carta, ESO Fund, and Darrow Wealth Management. AMT calculations shown are simplified illustrations. Actual tax liability depends on total income, deductions, state of residence, and other factors. Consult a qualified CPA or tax professional before making any decisions about exercising stock options.