ISO Tax Calculator: AMT on Incentive Stock Options

Use this calculator to estimate the federal tax cost of exercising incentive stock options (ISOs): the alternative minimum tax (AMT) the exercise can trigger this year, the earliest date you can sell for long-term capital gain treatment, and what a qualifying or disqualifying sale would cost later. Enter your shares, strike price, the stock's fair market value, your grant and exercise dates, your other income, and how you plan to exercise.

Short answer: exercising ISOs and holding the shares creates no regular income tax, but the spread (fair market value minus strike price) is added to your income for AMT. For 2026 the AMT exemption is $90,100 for single filers and $140,200 for joint filers, it phases out by 50 cents per dollar of AMT income above $500,000 ($1,000,000 joint), and AMT income above the exemption is taxed at 26% up to $244,500 and 28% after that, per Rev. Proc. 2025-32. You owe AMT only for the amount by which that tentative minimum tax exceeds your regular tax.

This calculator is for informational purposes only. Its results are estimates based on the inputs you enter and simplified assumptions, not a completed Form 6251, and they may differ from what tax software or the IRS computes.

How are incentive stock options taxed?

ISOs are taxed at three moments, and the treatment depends on whether you hold the shares long enough. The rules come from IRC §422 and are summarized in IRS Publication 525.

ISO income is exempt from Social Security and Medicare tax even when it is ordinary income (IRC §3121(a)(22)), which is one of the few advantages a disqualifying disposition keeps over a nonqualified option.

What are the ISO holding period rules?

A sale is a qualifying disposition only if it happens more than two years after the option was granted and more than one year after you exercised. Both clocks run to the sale date. A common mistake is to treat the two-year rule as running from grant to exercise; it does not.

The calculator works out both anniversaries and shows the later one, plus one day, as your earliest qualifying sale date:

• Grant January 1, 2022, exercise October 9, 2026: two years from grant is January 1, 2024 (already passed), one year from exercise is October 9, 2027, so the earliest qualifying sale is October 10, 2027.
• Grant March 1, 2026, early exercise June 1, 2026: one year from exercise is June 1, 2027, but two years from grant is March 1, 2028, so a sale before March 2, 2028 is disqualifying even though you held the shares more than a year.

Selling before that date does not cost you the shares, it just changes the tax: the spread at exercise becomes ordinary income in the year of sale.

How much AMT will an ISO exercise trigger?

The calculator starts from your regular return: your income minus the standard deduction gives regular taxable income, priced with the 2026 brackets. For AMT it adds back the standard deduction (Form 6251 line 2a), adds the ISO spread on the shares you keep (line 2i) and any other adjustments you enter, subtracts the exemption after the phase-out, and applies the 26%/28% rates. AMT is the excess of that tentative minimum tax over your regular tax.

Worked example: $150,000 salary and a $40,000 spread

A single filer earning $150,000 exercises 1,000 ISOs with a $10 strike when the stock is worth $50, and keeps the shares.

1. Regular taxable income: $150,000 − $16,100 standard deduction = $133,900.
2. Regular tax on $133,900: $1,240 (10%) + $4,560 (12%) + $12,166 (22%) + $6,768 (24%) = $24,734.
3. AMT income: $133,900 + $16,100 add-back + $40,000 spread = $190,000.
4. AMT exemption: $90,100 (AMTI is far below $500,000, so no phase-out).
5. Taxable excess: $190,000 − $90,100 = $99,900. Tentative minimum tax: $99,900 × 26% = $25,974.
6. AMT: $25,974 − $24,734 = $1,240.

The exercise itself costs $10,000 in cash for the shares plus about $1,240 of extra federal tax, and that $1,240 becomes a minimum tax credit you can recover later.

How much spread can you exercise before AMT starts?

You can exercise up to the point where tentative minimum tax equals regular tax. In the example above that is when (AMTI − $90,100) × 26% = $24,734, which gives AMTI of about $185,230, or roughly $35,200 of spread on top of $150,000 of salary.

Higher income does not buy more room. A married couple with $300,000 of wages has regular taxable income of $267,800 and regular tax of $49,468. Their AMT break-even is a taxable excess of $190,262 ($49,468 ÷ 26%), so AMTI of about $330,460 and only about $30,500 of spread before AMT applies. Their regular tax already sits in the 24% bracket, while AMT starts at 26% on nearly everything above the exemption.

Why large exercises get expensive faster from 2026

Once AMT income passes $500,000 (single) or $1,000,000 (joint), each extra dollar of spread also removes 50 cents of exemption, so the effective AMT rate on that slice is 39% (26% × 1.5) or 42% (28% × 1.5) until the exemption is gone. For a single filer that happens at $680,200 of AMTI. In 2025 the phase-out began at $626,350 and removed only 25 cents per dollar, so the same exercise now loses the exemption sooner.

Same-day sale and sell-to-cover exercises

If you sell shares in the same calendar year you exercise them, those shares never create an AMT adjustment. The spread is ordinary compensation, reported on your W-2, and taxed at your regular bracket rates. The calculator offers two versions:

• Same-day sale: all shares are sold at exercise. In the example, the $40,000 spread is added to taxable income of $133,900, all of it lands in the 24% bracket, and the extra tax is $9,600 with no AMT.
• Cashless exercise (sell to cover): the calculator sells just enough shares to pay the strike ($10,000 ÷ $50 = 200 shares). The $8,000 spread on those 200 shares is ordinary income; the other 800 shares are held and create a $32,000 AMT adjustment.

Your employer is not required to withhold income tax on income from a disqualifying disposition (IRC §421(b)), so a same-day sale can leave the whole tax bill for April. Use the federal tax bracket calculator to see which bracket the spread lands in, and cover it with an estimated payment or extra W-4 withholding.

What tax do you pay when you sell ISO shares?

The calculator assumes the held shares are sold later at the same price you entered, in a year with the same other income, and shows both outcomes:

The long-term rate is not a flat 15%. The 0% band runs to $49,450 of taxable income for single filers ($98,900 joint) and the 20% rate starts above $545,500 ($613,700 joint) in 2026, so the calculator stacks the gain on top of your other income to price it. If your modified AGI exceeds $200,000 ($250,000 joint), the 3.8% net investment income tax also applies to the gain; the calculator adds it, and the NIIT calculator shows the full computation. Gains on a disqualifying sale are compensation, not investment income, so NIIT does not apply to the spread.

Two details reduce the sting of a falling stock price. If you make a disqualifying sale for less than the value at exercise, the ordinary income is limited to your actual gain over the strike price. And because your AMT basis in the shares already includes the spread, the sale year gets a negative AMT adjustment, so the same dollars are not hit by AMT twice.

For more on how long-term rates work, see short-term vs. long-term capital gains tax rates and the capital gains calculator.

How the AMT credit works

AMT caused by the ISO adjustment is a timing difference, so it generates a minimum tax credit that you claim on Form 8801 in later years. You can use the credit in any year when your regular tax is higher than your tentative minimum tax, and unused credit carries forward indefinitely.

In practice the credit often comes back in the year you sell the shares: a qualifying sale produces a capital gain for regular tax but a smaller gain for AMT (because AMT basis is $50 a share, not $10), which pushes regular tax above tentative minimum tax and frees up credit. If you exercise every year and never sell, the credit can sit unused for a long time.

The calculator estimates the credit as the AMT with the exercise minus the AMT you would owe without it. It treats any other adjustments you enter as exclusion items that do not generate credit. AMT caused by, for example, private activity bond interest does not come back.

The $100,000 ISO limit

Only the first $100,000 of stock (valued at the grant-date price) that becomes exercisable for the first time in a calendar year qualifies as ISOs under §422(d). Options above that amount are treated as nonqualified stock options, which are taxed as wages at exercise. Your grant agreement or equity platform usually splits a large grant into ISO and NSO portions; enter only the ISO shares here.

Reporting an ISO exercise

Your employer sends Form 3921 for each ISO exercise, showing the grant date, exercise date, strike price, fair market value and number of shares. Keep it: you need the fair market value for the AMT adjustment on Form 6251 line 2i (Form 6251 instructions) and for your AMT basis when you sell.

When you sell, the cost basis on Form 1099-B is usually just the strike price. After a disqualifying sale, the spread is already in your W-2 income, so you adjust the basis on Form 8949 to include it; otherwise you pay tax on the same dollars twice. Track a separate AMT basis for every lot you hold across years.

What this calculator leaves out

• State income tax. The state field is for reference only; state tax on the spread or the sale is not included.
• Long-term gains and qualified dividends you already have. Other preferential income changes both regular tax and AMT; use the AMT calculator to model a full return.
• Itemized deductions. The calculator assumes the standard deduction. If you itemize, state and local taxes are added back for AMT instead.
• Price changes after exercise. Sale scenarios use the fair market value you entered as the sale price.
• Multiple years. Each run models one exercise year. To compare spreading an exercise across December and January, run it twice with the share counts for each year.

If the stock qualifies as small business stock, a later sale may also be eligible for the exclusion covered by the QSBS calculator. For broader planning around when to realize gains, see capital gains tax strategies.