ISO vs NSO Stock Option AMT Tax Calculator
Incentive Stock Options (ISOs) offer LTCG treatment if held properly — but the exercise spread triggers Alternative Minimum Tax (AMT). Non-Qualified Stock Options (NSOs) are ordinary income at exercise but no AMT. Compare your tax exposure under each.
| Shares Exercised | — |
| Strike Price | — |
| FMV at Exercise | — |
| Bargain Element | — |
| NSO Ordinary Tax | — |
| NSO NIIT | — |
| NSO State | — |
| NSO Total Tax | — |
| AMT Exemption (2026) | — |
| ISO AMT | — |
| ISO State | — |
| ISO Total Tax | — |
| Tax Difference | — |
ISO vs NSO Tax Mechanics
Incentive Stock Options (ISOs): no tax at exercise for regular tax, but the bargain element (FMV − strike) creates an AMT adjustment. If you hold the shares 2+ years from grant AND 1+ year from exercise, the sale gain is taxed as long-term capital gains (max 20% + 3.8% NIIT).
Non-Qualified Stock Options (NSOs): bargain element is taxed as ordinary income at exercise (W-2). Any subsequent gain/loss is capital. NSOs don't trigger AMT. Simpler but usually higher tax overall on the exercise.
Source: irs.gov IRC §421/422 (ISO) + §83 (NSO)
The AMT Trap
The 2026 AMT exemption is $87,400 single / $136,200 married. Phaseout begins at $626,350 single / $1,252,700 married. The AMT rate is 26% on AMT income up to ~$232K, 28% above.
On a $250K bargain element exercise at a single filer making $200K, the AMT can be $30K-$50K. This is cash you owe in April even though you haven't sold any stock. Many ISO holders are caught off-guard.
AMT Credit Recovery
AMT paid on ISO exercise creates a Minimum Tax Credit (MTC) that you can recover in future years when regular tax exceeds AMT. The credit is recovered as long as your regular tax exceeds AMT in subsequent years.
If you sell the ISO shares in the same year as exercise (disqualifying disposition), the AMT doesn't apply — but you lose ISO tax treatment and pay ordinary income on the bargain element (like NSO). Sometimes this is the right move.
Disqualifying Disposition Strategy
Disqualifying disposition: sell ISO shares within 2 years of grant OR 1 year of exercise. Result: bargain element taxed as ordinary income (W-2 wages), no AMT applies, no LTCG benefit. You're effectively converting ISOs to NSO treatment.
When useful: stock price drops below strike (avoid paying AMT on a paper gain that no longer exists). Or when you need cash and the AMT bill from holding would be punishing. See our 83(b) election calculator for related decisions.