ISO Exercise + AMT Calculator

Why ISO exercise creates a tax bill on phantom income

Three things make Incentive Stock Options different from RSUs and NSOs at exercise:

• No regular tax at exercise. Unlike NSOs (taxed as ordinary income) or RSUs (taxed at vest), exercising an ISO and holding triggers no federal regular tax. This is the headline benefit.
• But AMT treats the bargain element as taxable. The Alternative Minimum Tax was designed to prevent high earners from zeroing out tax via deductions. ISO bargain element is one of its preference items: (FMV − strike) × shares gets added to AMT income.
• You owe cash for income that hasn't materialized. The classic trap: exercise at $50 FMV in March, stock crashes to $5 by December, you still owe AMT on the $50 - strike spread the following April. People have lost houses to this.

The AMT credit recovery. AMT paid is recoverable as a credit in future years when your regular tax exceeds your AMT for that year. In a steady-state career it'll work out — you eventually get the cash back. But "eventually" is often 5–10 years; the cash you write in April is real, immediate, and not optional.

Math runs locally. Inputs never leave your browser. Source on github.

Real-world scenarios

• The $80K AMT bill that didn't disappear when the stock did — a 2022 IPO unicorn employee's exercise math, why "exercise early to start the LTCG clock" backfired, and what the spreadsheet should have shown.
• RSU Vesting + Cliff Trap — RSUs avoid the AMT trap because they're already ordinary income at vest. ISOs trade off ordinary tax for AMT exposure.
• Tech TC Breakdown — how ISOs fit into a startup offer alongside salary, RSU refresh, and sign-on. Strike price matters more than headline grant value.