AMT Threshold Calculator
Instantly estimate the amount of ISO stock options you can exercise before triggering the Alternative Minimum Tax (AMT).
Why You Can Exercise Some ISOs “Tax-Free”
When people say you can exercise ISOs “tax-free,” they mean the exercise doesn’t trigger AMT. Exercising ISOs never creates regular income tax, but it can create an AMT adjustment, the spread between the share’s fair market value (FMV) and your strike price. If that adjustment is small enough to fit under your AMT exemption and thresholds, your AMT ends up equal to your regular tax, so you owe nothing extra for the year.
What “Tax-Free” Really Means
In this context, “tax-free” means:
- No additional tax is owed in the year of exercise (no regular tax and no AMT).
- You may still owe capital gains tax later when you sell the shares.
- Nothing changes about future AMT credits since you didn’t trigger AMT.
This happens when the ISO spread you create is low enough that the AMT system doesn’t exceed your normal tax and is exactly what the calculator helps you estimate.
For Example:
You exercise 10,000 Incentive Stock Options (ISOs) at a $1 strike price, while your company’s 409A valuation is $6 per share.
- Taxable spread: ($6 – $1) × 10,000 = $50,000
- Your regular tax might not change, but under the AMT system, your taxable income increases by that $50,000 spread.
- That boost in income raises your Tentative Minimum Tax (TMT)—and depending on your deductions and exemptions, could trigger AMT.
If your annual income is around $180,000, you can typically exercise about 6,300 shares without triggering AMT. This could avoid roughly $17,500 in AMT liability, depending on your personal tax situation
How The AMT Threshold Calculator Works
Inputs used:
• Shares Exercised – Number of ISOs you exercised this tax year
• Strike Price – The price you paid per share
• Fair Market Value – Per-share value on the date of exercise
• Estimated Income – Your total taxable income for the year
Formula: (FMV – Strike Price) × Shares = AMT Income from Exercise
Calculation Steps:
- Compare: if TMT > Regular Tax, you owe the difference as AMT. If not, you’re in the clear.
- Start with your Total Income
- Subtract the Standard Deduction
- Calculate your Regular Federal Income Tax based on income and filing status
- Compute the ISO Spread using your exercise data
- Add that spread to your income to find Alternative Minimum Taxable Income (AMTI)
- Subtract the AMT Exemption ($88,100 for individuals in 2025)
- Calculate your Tentative Minimum Tax (TMT)
Why Use Our Calculator?
- Purpose-built for ISO holders looking to earn more from their equity.
- Calculates AMT exposure using 409A FMV vs strike price.
- Free to use.
Free to sign up. - Updated with 2025 tax year calculations.
What should I do next?
Create a free Prospect account: Unlock extra features—model state taxes, filing status, and exit outcomes all in one place.
Time ISO Exercises: If you have ISOs, strategically timing their exercise and sale can significantly reduce or eliminate AMT impact.
Monitor AMT-Triggering Income: Keep an eye on other sources of income or adjustments, like large capital gains, exercised ISOs, or certain deductions, that can push you into AMT territory.
Estimate Tax Payments: If you anticipate owing AMT, adjust your estimated tax payments or W-4 withholdings to avoid underpayment penalties.
AMT Credit: In some cases, if you pay AMT in one year due to deferral items (like ISOs), you may be eligible for an AMT credit in a future year when those items reverse. This is complex and often requires professional guidance.
What is the Alternative Minimum Tax (AMT)?
At its core, the Alternative Minimum Tax (AMT) operates as a parallel tax system. You calculate your tax liability under both the regular tax rules and the AMT rules, and you pay whichever amount is higher. It’s not an additional tax in the sense of being tacked on; rather, it's a separate calculation that might replace your regular tax bill if the AMT computation results in a larger figure. This dual system can be perplexing, but its purpose is quite specific.
Why AMT Basics Matter for Startup Employees
The Alternative Minimum Tax (AMT) was created in 1969 to ensure that high-income earners still pay a baseline level of tax—even when they benefit from certain deductions or credits.
For startup employees, AMT often enters the picture when you exercise Incentive Stock Options (ISOs).
Even if you don’t sell your shares, the IRS treats the “spread”—the difference between your strike price and the company’s 409A Fair Market Value—as income.
That “phantom gain” can trigger AMT and lead to an unexpected tax bill. Running these numbers ahead of time can save you a major headache later.
Powerful tools to earn more from your equity
Frequently Asked Questions
Joining Anduril as an employee is another way to acquire equity, typically through stock options included in compensation packages.
How do I calculate Tentative Minimum Tax (TMT)?
To calculate AMT, you start with your regular taxable income, then add the ISO spread (the difference between fair market value and strike price at exercise). After subtracting the AMT exemption for your filing status, the result is taxed at 26% or 28%. If this amount is higher than your regular tax, you pay the difference as AMT.
What are the Federal AMT tax Rates?
The 2025 federal Alternative Minimum Tax (AMT) rates are 26% on the first $239,100 of AMT income and 28% on amounts above that. These rates apply after subtracting the AMT exemption, which phases out at higher income levels.
What are the 2025 AMT exemption amounts?
For 2025, the AMT exemption amounts are $88,100 for single filers, $137,000 for married filing jointly, and $68,650 for married filing separately. These exemptions begin to phase out at $626,350 for single filers and $1,252,700 for joint filers.
Does AMT apply if I don't sell my ISOs?
Yes, AMT can apply even if you don’t sell your ISOs in that year. Specifically, when you exercise ISOs and hold the shares past year-end, the “bargain element” (the difference between exercise price and fair market value at exercise) is treated as a preference item and added to your income under AMT rules.
Is this the same as the IRS calculator?
No, this calculator is specifically tailored to calculating how my ISOs you can exercise before hitting the AMT limits. The IRS calculator is designed for a broader range of taxpayers and scenarios.
Does AMT apply to NSOs?
No, AMT generally does not apply to NSOs in the way it does for ISOs. The “bargain element” of an NSO is taxed as ordinary income in the year of exercise (and reported on Form W-2 or as compensation), so it is not a preference item added back for AMT purposes.
What are AMT credits and how do they work?
AMT credits let you recover some of the Alternative Minimum Tax paid in prior years by using it as a nonrefundable credit against regular tax in future years when your regular tax exceeds AMT. You claim it on Form 8801, and any unused credit can be carried forward indefinitely until fully used.
When can I use AMT credits?
You can use AMT credits only in years when your regular income tax liability exceeds your tentative minimum tax (i.e. you don’t owe AMT) — the credit reduces your regular tax down to, but not below, your AMT obligation.
Do AMT credits expire?
No, AMT credits do not expire. Any unused portion is carried forward indefinitely until you can apply it against your regular tax (to the extent your regular tax exceeds your tentative minimum tax)
What is the difference between the AMT exemption and AMT credit?
The AMT exemption is an amount you subtract from your Alternative Minimum Taxable Income (AMTI) to reduce how much of your income is subject to AMT. The AMT credit is a tax credit you can use in later years to recoup some of the AMT you paid in the past, reducing your regular tax in years where your regular tax exceeds your tentative minimum.
What is State AMT and how does it differ from Federal AMT?
A State AMT is a state-imposed alternative minimum tax (or minimum tax) that some states require taxpayers to compute in addition to their regular state income tax. It differs from the Federal AMT in level (state vs federal), in what income adjustments, deductions or credits are added back, in tax rates, and in exemption/phase-out rules (because each state sets its own rules) — and not all states have one.
How do AMT and regular tax brackets compare?
The regular tax system in 2025 uses seven marginal rates from 10% up to 37% depending on taxable income level. By contrast, AMT uses a simplified two-tier structure of 26% and 28% and excludes many deductions and preferences allowed under regular tax.
