Compute Alternative Minimum Tax, runs parallel to regular tax. You pay the higher.
AMT due (above regular)
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AMT (parallel)
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AMT exemption
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A second tax system running quietly in the background
The Alternative Minimum Tax is not an extra tax bolted onto your regular bill. It is a complete parallel calculation of what you owe, built on a wider definition of income and a flatter rate structure, and the rule is blunt: you compute your tax both ways and pay whichever is higher. Congress created it so that high earners stacking deductions and preference items could not zero out their liability. After the 2017 tax law raised the exemptions sharply, the AMT stopped touching the upper middle class and now lands mostly on a narrower group, with one trigger standing out above all others.
This calculator takes your Alternative Minimum Taxable Income, applies the 2026 exemption for your filing status, and runs the result through the two AMT rates. Then it compares the AMT figure against the regular tax you enter and shows whether any additional AMT is due. The exemption is the heart of it, $88,100 for a single filer and $137,000 for a married couple filing jointly in 2026, and it is what shields most people from the AMT entirely.
Two flat rates and a vanishing exemption
Once the exemption comes off, the AMT applies just two rates: 26% on the AMT base up to $232,600 and 28% above it. There are no progressive brackets the way regular tax has. The complication is that the exemption itself phases out at high income. For every dollar your AMTI rises above the phase-out threshold (around $626,350 single, $1,252,700 joint in 2026), you lose 25 cents of exemption, which quietly pushes more of your income into the taxed zone. Below those thresholds you get the full exemption, which is the case in the example that follows.
An ISO exercise that pulls a single filer into AMT
The textbook trigger is exercising incentive stock options and holding the shares past year-end. The bargain element, the spread between strike and fair market value, is invisible to regular tax that year but is a preference item that inflates AMTI. Say a single filer ends up with $400,000 of AMTI after that spread, against $60,000 of regular tax. Here is the calculation.
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Because the $82,680 AMT exceeds the $60,000 regular tax, the filer writes an additional $22,680 check. That cash is owed in the year of exercise even though no shares were sold and no cash was raised, which is exactly how option holders get blindsided.
The credit that gives the money back, slowly
AMT paid because of timing differences like an ISO exercise is not gone forever. It generates a minimum tax credit, claimed on Form 8801, that you carry forward and use in future years when your regular tax exceeds your tentative AMT. In effect the ISO AMT is often a prepayment rather than a permanent surcharge. The catch is that recovering it can take many years and depends on your regular tax outrunning the AMT in later years, so the cash crunch in the exercise year is very real even when the long-run cost is smaller. AMT is reported on Form 6251, and anyone exercising ISOs should run this calculation before December 31, when there is still time to sell some shares in a disqualifying disposition and pull the spread back under regular tax.
What counts as AMTI versus regular taxable income?
AMTI starts from regular taxable income and adds back items the AMT does not allow, then layers in preference items. The big add-backs are the state and local tax deduction (disallowed entirely under AMT) and the ISO bargain element. Items like the standard deduction are also added back. This tool asks you to enter AMTI directly so it stays accurate regardless of which preferences apply to you, but if you are estimating, remember that a large SALT deduction or a big ISO spread is usually what drives the two figures apart.
Does selling ISO shares in the same year avoid AMT?
Yes, generally. If you exercise and sell in the same calendar year, the transaction becomes a disqualifying disposition and the spread is taxed as ordinary income under the regular system rather than counted as an AMT preference. You lose the chance at long-term capital gains treatment on the spread, but you sidestep the AMT cash trap. Whether that trade is worth it depends on the share price and your conviction, which is a planning conversation worth having with a CPA before year-end.