What is the AMT? (The Tax That Hits the Middle Class)
Think you calculated your taxes correctly? Think again. The Alternative Minimum Tax (AMT) is a parallel “Shadow Tax” system designed to ensure no one escapes the IRS using too many loopholes.
Two Calculators, One Bill
The IRS does not trust the regular tax code because it has too many deductions. So they created AMT, which ignores most deductions.
| Component | Regular Tax | AMT System |
|---|---|---|
| Deductions | Generous | Very Limited |
| Tax Rates | 10% – 37% | 26% or 28% |
| ISO Spread | Taxed Later | Taxed NOW |
| Result | $15,000 | $18,000 |
| Income Level | Risk |
|---|---|
| Under $100k | Low |
| $200k – $500k | High |
The Tech Employee Trap (Incentive Stock Options)
This is the most common reason normal people get hit by AMT.
The Scenario
- Action: You exercise ISO stock options to buy shares at $1, but they are currently worth $10.
- Regular Tax: You pay $0 tax until you actually sell the shares.
- AMT Tax: The IRS counts that $9 profit (spread) as income TODAY, even if you haven’t sold the stock.
The Danger
2026 AMT Exemption Limits
Thankfully, you get a large “AMT Exemption” (deduction) to protect low and middle incomes. You only pay AMT if your income exceeds these buffers.
- Single: ~$85,700 Exemption.
- Married Filing Jointly: ~$133,300 Exemption.
(Note: These figures are inflation-adjusted estimates. If your income is below these thresholds, you generally don’t need to worry about AMT.)