How much is your Alternative Minimum Tax?

If you exercise Incentive Stock Options (“ISOs”), you may be subject to Alternative Minimum Tax (“AMT”). AMT is a parallel tax system imposed on an alternative, more comprehensive measure of income, which includes the unrealized gains of ISO value and fewer opportunities for deductions. If the calculated AMT exceeds the ordinary income tax, then the AMT amount is used.

Note that this is an oversimplified estimate that focuses exclusively on ISOs and their impact on AMT. This is not legal or tax advice. For assistance with your specific situation, please consult a tax lawyer.

Enter your basic information below to see if you are subject to AMT.

Income $
# of ISOs Exercised
Strike Price $
409A Share Value $

Given your input, here’s an AMT estimate for 2016.

Income
+ Adjustment
AMT Income
— AMT Exemption
AMT Base
Tentative Minimum Tax
(26% or 28% of AMT base)
Ordinary Income Tax
Payable Tax
(Greater of tentative minimum tax or ordinary income tax)
Max ISOs to avoid AMT
(Exercising this many ISOs will not trigger AMT)

How to calculate AMT

We first start with the adjusted gross income. For the purposes of this back-of-the-envelope estimation, we use the annual gross salary. However, there are many other adjustments that influence this number. Learn more about determining the adjusted gross income.

To get to the alternative minimum taxable income (“AMTI”), there are many income adjustments applied to the adjusted gross income. This site only considers the value of ISOs when exercised (the most recent 409A appraisal of the stock less the strike price). However, there are many other types of deductions subject to AMT.

To calculate the AMT base, we take AMTI and less the AMT exemptions. The actual exemption amount depends on the filing status and total AMTI. Here is the table for determining the exemption amounts for 2016:

Filing Status
Amount
Phase out
Single
53,900
119,700
Married
83,800
159,700
Married, Filing Separately
41,900
79,850

To prevent upper-income taxpayers from benefiting from the exemption, it “phases out” as AMTI increases. For every $1 beyond the phase out amount, the exemption amount is reduced by $0.25. For example, a single person who has AMTI of $150,000 will only have 53,900 – ((150,000 – 119,700) x 0.25) = 23,600 of exemptions. Learn more about calculating AMT exemptions.

We calculate the tentative minimum tax by applying the AMT rate (either 26% or 28%, depending on the amount) to the AMT base. For 2016, the threshold where the 26 percent AMT tax bracket ends and the 28 percent AMT tax bracket begins is $93,150 for married filing separately and $186,300 for all other filing statuses.

Filing Status
26%, 28% Threshold
Single
186,300
Married
93,150
Married, Filing Separately
186,300

Finally, we compare the tentative minimum tax to the ordinary income tax. Ordinary income tax is calculated based on a varying rates associated with the income, as well as the filing status (the table for 2016 is below). The ultimate payable tax will be the greater of either the tentative minimum tax or the ordinary income tax.

Here is the table for ordinary income tax brackets:

Rate
Single
Married
Married, Filing Separately
10%
0
0
0
15%
9,275
13,250
9,275
25%
37,650
50,400
37,650
28%
91,150
130,150
75,950
33%
190,150
210,800
115,725
35%
413,350
413,350
206,675
39.6%
415,050
441,000
233,475

The rate on the left applies to income from that row to the one beneath it. For instance, a single person with $150,000 in income will pay 10% on the first $9,275, 15% on the next $28,375, 25% on the next $53,500, and 28% on the remaining $58,850.