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ISO AMT Calculator

How many incentive stock options you can exercise and hold before the alternative minimum tax kicks in, and what it costs past that point.

Updated · By Niraj Kumar · 1 source

You

Filing statusFiling status
$
$

Withheld as supplemental wages before any equity.

$
%
0%15%

A flat rate on the extra income. Use 0 for Texas, Washington or Florida. California's top rates run 9.3–13.3% and it has its own AMT, which is not modelled.

Your company's stock

$

For a private company, the latest 409A value.

Incentive stock options (ISOs)

shares

$
After exercisingAfter exercising
$

For the long-term gain and AMT credit estimate. Defaults to today's price.

Concentration

shares
$

Cash, funds, retirement accounts and home equity.

AMT-free ISO exercise1,057 sharesabout $31,731 of spread before AMT starts
Equity income
$150,000
RSU value plus option spreads
Federal income tax
$0
AMT
$30,968
comes back as a credit in later years
Social Security & Medicare
$0
State
$0
Extra tax this year
$30,968
20.6% of your equity income
Withheld by your employer
− $0
Left to pay
$30,968
Raise W-4 withholding or pay estimated tax to avoid an underpayment penalty

Your ISO exercise

AMT crossover
1,057 shares
$31,731 of bargain element with no AMT this year
Cash to exercise
$50,000
5,000 shares at $10.00
AMT from this exercise
$30,968
Break-even share price
$16.19
Below this, the shares are worth less than the exercise cost plus AMT
Selling this year compared with holding for a qualifying sale
Sell this yearHold, sell after a year
Sale price$40.00$40.00
Tax this year$55,905$30,968
Tax on the sale—$35,529
AMT credit used—− $30,750
Total tax$55,905$35,747
Kept after exercise cost and tax$94,095$114,253

$218 of AMT credit is still unused after the sale and carries forward to later years.

AMT at different exercise sizes
ISOs exercised and heldBargain elementAMTCash needed
529$15,870$0$5,290
1,057$31,710$0$10,570
1,586$47,580$4,121$19,981
2,114$63,420$8,239$29,379
3,171$95,130$16,484$48,194

Concentration risk

After this year you would hold 5,000 shares, worth $200,000: 44% of your net worth. Many planners suggest keeping a single stock under 10–20%, all the more so when your paycheck depends on the same company.

What a fall in the share price would do
Share priceYour sharesShare of net worth
$40.00 today$200,00044%
$30.00 (−25%)$150,00038%
$20.00 (−50%)$100,00029%
$10.00 (−75%)$50,00017%

The $30,968 of AMT is due in April whatever the price does. At a $16.19 share price, the ISO shares are worth only what you paid to exercise them plus that tax.

How the ISO AMT Calculator works

AMT = max(0, TMT − regular tax), TMT = 26%/28% × (AGI + ISO spread − exemption)

This page uses the same method as the Stock Option & RSU Tax Calculator, which explains each term and assumption in full.

Worked example

A single filer on a $200,000 salary exercises and holds 5,000 ISOs with a $10 strike while the shares are worth $40.

  1. 1Regular tax on the salary: $36,734
  2. 2The ISO bargain element is 5,000 × ($40 − $10) = $150,000, which is added to AMT income: $350,000
  3. 3Less the $90,100 exemption, the tentative minimum tax is $67,882
  4. 4AMT is the excess over regular tax: $31,148. You could have held about 1,046 ISO shares with no AMT at all

The equity adds $31,148 of tax this year, and $31,148 of it is not withheld. The ISO's $31,148 of AMT comes back as a credit in later years.

Frequently asked questions

What is the AMT crossover point?

The largest ISO bargain element you can add this year before your tentative minimum tax overtakes your regular tax. Below it, exercising and holding ISOs costs no tax at all this year. Above it, each extra dollar of spread costs 26 or 28 cents of AMT. Many employees exercise up to the crossover every December to start their holding period without paying AMT.

What is the ISO AMT trap?

You exercise ISOs and hold the shares, which triggers AMT on the paper gain. Then the share price falls, or the company is private and you cannot sell. You still owe the AMT in cash, on a gain you may never realise. The break-even price shows the share price at which your held shares are worth less than the exercise cost plus the AMT.

Does selling ISO shares in the same year avoid AMT?

Yes. A disqualifying disposition in the same calendar year removes the AMT adjustment, and the spread becomes ordinary income on your W-2 instead. That costs more regular tax but no AMT, and you have the cash from the sale to pay it. Switch the disposition to compare the two.

Sources

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