AMT — Alternative Minimum Tax (IRC §55-§59)

A parallel federal tax system that catches certain types of income — most notoriously, ISO exercise spreads — that escape regular tax.

What it actually means

The Alternative Minimum Tax is a parallel federal tax system designed to ensure high-income taxpayers don't use deductions and credits to escape paying tax entirely. Computed alongside regular tax — you pay whichever is higher. Most relevant to tech employees: when you exercise Incentive Stock Options (ISOs), the spread between your strike price and the fair market value at exercise becomes AMT income, even though regular tax doesn't recognize the gain until you sell.

Distinguishing it from look-alikes

AMT paid on ISO exercise creates a Minimum Tax Credit (MTC) you can use against future regular tax. So AMT on ISO exercise is generally a timing problem (recoverable) rather than a permanent loss — provided you sell the shares as a qualifying disposition (held 1+ year post-exercise AND 2+ years post-grant). Disqualifying dispositions claw back AMT benefits faster.

Examples

$400K W-2 + 10K ISOs at $4 strike, $52 FMV at exercise

$480K spread → AMTI added → ~$130K AMT bite. Recoverable as MTC over 5-10 years.

Sell ISOs same year as exercise (disqualifying disposition)

Spread converts to ordinary income (regular tax), AMT becomes irrelevant. Often beneficial in HIGH-AMT years.

Exercise + hold for 5 years for QSBS

AMT bite at year 1, then qualifying disposition + QSBS exclusion at year 5+ — best-case combined treatment