ISO vs. NSO Stock Options & AMT Calculator
Updated for tax year 2026 (OBBBA rules). Last reviewed August 31, 2026. All calculations run in your browser; nothing you enter is sent to a server.
Select a Startup Equity Scenario or customize below:
Estimated AMT-free exercise capacity
Based on your income, you can exercise up to shares (-- spread) this year with zero Alternative Minimum Tax.
Assumes entered income, standard exemption, and no other preference items.
Exercise & Income Details
For NSOs, states source equity income based on workdays during vesting. The Residence state credits taxes paid to the work state (OSTC).
Immediate Exercise Cash Outlay Check to Write Today
Generates $14,240.00 in Form 8801 Minimum Tax Credits for future recovery.
Tax establishes full regular basis ($10.00/sh). Zero AMT credit generated.
Visual Tax Analysis
Full Lifecycle Exit & Take-Home Gain (at $30.00 Exit)
What this calculator does
Navigating startup equity can be incredibly complicated, especially when you are trying to understand the differing tax treatments of Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs). This calculator helps you forecast the immediate tax impact and cash requirements when exercising your stock options. By inputting your current salary, option strike price, fair market value (FMV), and the number of shares, the tool estimates your potential Alternative Minimum Tax (AMT) liability for ISOs or ordinary income tax liability for NSOs.
It is designed for tech employees and startup founders who need to decide whether it makes financial sense to exercise their options today. You can model various scenarios to find your estimated AMT-free exercise capacity, allowing you to strategically exercise shares without triggering a massive tax bill. Keep in mind that this tool relies on your inputs and is meant for educational modeling, not as a replacement for professional tax preparation.
How the math works
The calculations follow the statutory mechanisms outlined in IRC §55 and IRS Form 6251. For the 2026 tax year, the Alternative Minimum Tax (AMT) calculation requires adding back the bargain element (the difference between the FMV and your strike price) of your ISOs to your ordinary income to determine your Alternative Minimum Taxable Income (AMTI).
The One Big Beautiful Bill Act (OBBBA, signed July 4, 2025) changed this calculation starting in tax year 2026. It made the higher AMT exemption amounts permanent ($90,100 for single filers and $140,200 for married filing jointly in 2026, indexed for inflation), reset the exemption phase-out thresholds to $500,000 and $1,000,000 respectively, and doubled the phase-out rate from 25% to 50%. The practical effect is that a large ISO spread now erases the exemption much faster than it did under 2025 rules, and the calculator applies the phase-out automatically based on the tax year you select.
If you hold your ISOs for a qualifying disposition—which strictly requires holding the shares for at least two years from the grant date and one year from the exercise date—your final gains may be taxed at favorable long-term capital gains rates. If you pay AMT upon exercise, you may generate a Minimum Tax Credit (MTC). However, recovery of this credit via Form 8801 depends entirely on your future tax years' ordinary liability exceeding your AMT liability; it is not an immediate refund.
Worked example
Take the High AMT Spread preset above: 15,000 options at a $1.00 strike, a $35.00 current FMV, and $200,000 of ordinary income (single filer, 2026). The bargain element is $34.00 per share, so the total spread is 15,000 × $34 = $510,000, and exercising costs $15,000 in strike price alone.
On the regular side, the $16,100 standard deduction leaves $183,900 taxable, which runs through the 2026 single brackets to $36,734. On the AMT side, AMTI is $200,000 + $510,000 = $710,000. That is $210,000 above the $500,000 OBBBA phase-out threshold, and at the 50% phase-out rate it erases $105,000 of exemption — more than the $90,100 available, so the exemption floors at zero and the full $710,000 is the AMT base. Tentative Minimum Tax is therefore ($244,500 × 26%) + ($465,500 × 28%) = $193,910, and the AMT actually owed is the excess over regular tax: $157,176.
| Step | Arithmetic | Result |
|---|---|---|
| ISO spread | 15,000 × ($35.00 − $1.00) | $510,000 |
| Regular tax | brackets on ($200,000 − $16,100) | $36,734 |
| AMTI | $200,000 + $510,000 | $710,000 |
| Exemption after phase-out | $90,100 − (($710,000 − $500,000) × 50%) | $0 |
| Tentative Minimum Tax | ($244,500 × 26%) + ($465,500 × 28%) | $193,910 |
| Federal AMT owed | $193,910 − $36,734 | $157,176 |
Federal cash needed at exercise is the $15,000 strike plus $157,176 of AMT. Any state AMT (California and Minnesota, for example) is layered on top of this figure by the calculator.
ISO vs NSO at a glance
The calculator models the tax mechanics, but several rules decide which type of option you actually hold and whether it keeps its status. These are the ones that most often surprise people.
| Rule | ISO (incentive stock option) | NSO (non-qualified stock option) |
|---|---|---|
| Who can receive them | Employees only | Employees, contractors, advisors, directors |
| Tax at exercise | No regular income tax or FICA. The spread is an AMT preference item (Form 6251). | Spread is ordinary wage income, subject to federal, state, and FICA tax, with withholding at exercise. |
| Basis in the shares | Regular basis is the strike price; AMT basis is the FMV at exercise (this is what later frees the Form 8801 credit). | FMV at exercise, since the spread was already taxed. |
| Tax at sale | Qualifying disposition (2 years from grant and 1 year from exercise): entire gain over strike is long-term capital gain. Sell earlier and the spread becomes ordinary income. | Gain over FMV-at-exercise is capital gain; long-term if held more than one year after exercise. |
| $100,000 limit | Only $100,000 of ISOs (measured at grant-date FMV) may first become exercisable in any calendar year. Anything above that is treated as NSOs, and companies often issue "split" grants for this reason. | No limit. |
| After you leave the company | Must be exercised within 3 months of termination (12 months for disability) to keep ISO treatment. Longer post-termination windows are common, but the options convert to NSOs once the 3 months pass. | Whatever window the plan allows, with no change in tax character. |
| Company tax deduction | None on a qualifying disposition, which is why some employers prefer to grant NSOs. | Deducts the spread as compensation expense. |
When NSOs come out ahead
The default comparison favours ISOs because the reader keeps the shares long enough for a qualifying disposition, but that is not always the realistic case. Use the Advanced panel to test these situations, where the NSO column often wins or the gap disappears:
- You expect to sell within a year of exercising. A disqualifying ISO disposition taxes the spread as ordinary income anyway, so the ISO advantage collapses to the FICA saving, and any AMT already paid becomes a credit you must wait to recover.
- The spread is small. With little or no AMT exposure, the ISO's main benefit is minor, while the NSO gives you a full-basis step-up and simpler reporting.
- You are already deep into AMT. Every extra dollar of spread is taxed at 26% or 28% now, and the Form 8801 credit can take many years to come back if your regular tax stays close to your tentative minimum tax.
- You need the cash. An NSO exercise with a same-day sale (a cashless exercise) requires no money down; an ISO exercise-and-hold requires the strike plus any AMT out of pocket, which is why exercise financing exists.
The lifecycle table above is the place to compare these, since it nets the tax at exercise, the tax at sale, and the credit recovery into a single take-home figure for each type.
Frequently Asked Questions
Do I owe AMT if I exercise ISOs but don't sell?
What happens if I sell my ISOs in the same year I exercise them?
When do I actually get the Form 8801 AMT credit back?
Should I use an 83(b) election for ISOs?
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Published by Breakeven Math, an independent publisher of financial calculators. Built and maintained by a software engineer, not by a tax professional.
The figures on this page are taken from IRS publications and the OBBBA statute, and the worked examples are regenerated from the calculator's own code whenever a figure changes. Treat the results as a starting point for a conversation with your CPA, not a substitute for one.
Last reviewed August 31, 2026. How we check our numbers.