Two Prices for One Share: What happens when I trigger AMT?

Every year, the IRS calculates your income tax twice. The first, the regular calculation, is the one you know: brackets, deductions, refund or bill. The second, the alternative minimum tax, strips out most deductions and adds back income the first never sees. You pay whichever answer is higher.

For almost everyone, the first calculation wins every year and the second stays invisible. Startup employees are the exception. When you exercise an incentive stock option, or ISO, you buy shares at the strike price your grant promised, usually far below what they are worth by then. The gap, the spread, is income to the AMT calculation and invisible to the regular one. Each year there is an amount of spread the AMT calculation can absorb before it overtakes the regular one, a tax-free limit set by your income. Cross it and the AMT sends a bill for shares you have not sold and may not be able to sell.

The letter before this one is about staying under that limit. This one is for the person already over it. Now what?

The money is not gone. The tax code records it as a credit, money the IRS owes back, and three things decide when you see it: the second price the IRS now puts on your shares, what you exercise next, and when you sell.

How did I end up with this bill?

Francesca was the twelfth employee to join her startup, and she runs operations there today. Her grant was 60,000 incentive stock options at a $0.60 strike. Three years later the company's appraisal put a share at $10.60, and last June she exercised 40,000 of them: a $24,000 check, no shares sold.

That is a $10 spread on 40,000 shares, $400,000 of income to the AMT calculation and nothing on her W-2. The regular calculation on her $175,000 salary came to $31,050. The AMT calculation came to $131,550. She pays the higher one. The difference, $100,500, was her second check, this April.

What did paying the AMT actually buy me?

A second price on every share.

The regular calculation says her shares cost what she paid: $0.60 each. The AMT calculation already counted the $10 spread as her income, so to it the shares cost $10.60. Same shares, two purchase prices, $400,000 apart.

Nothing you own records the second price. Carta shows $0.60. Your brokerage will show $0.60. The $10.60 lives on line 2i of Form 6251 for the year you exercised, and nowhere else. Lose it and the AMT taxes that $400,000 a second time when you sell.

Do I get the money back?

Yes, and slower than you would like.

The AMT on an ISO exercise is a prepayment: the IRS taxed a gain you have not realized yet. When you sell and the regular calculation catches up, taxing the same $400,000 twice would be absurd, so the code hands the AMT back as a minimum tax credit, tracked on Form 8801. Francesca's credit is the whole $100,500.

The credit never expires. It is also never refunded. It comes back only in a year your regular calculation is higher than your AMT calculation — the way it is for almost everyone, most years — and only by the size of that gap. Everything depends on that gap.

On Francesca's $175,000 salary, with no sale and no new exercise, the gap is about $8,700 a year. That caps how fast the credit comes back: $8,700 in 2026, $8,700 in 2027, twelve years to collect all of it. She did not pick that schedule.

Can I keep exercising while I wait for the credit?

You can. Every share you exercise pushes the repayment back.

New spread raises the AMT calculation, which shrinks the gap, which means less of the old credit comes back. Exercise enough and the gap closes: nothing returns, and the new AMT stacks onto what you are owed.

Francesca still holds 20,000 unexercised options, and the company's appraisal has climbed to $16.

She stops exercising. The credit comes back at $8,700 a year and is gone by 2037.

She fills her tax-free limit every year. The Second Set of Books says to exercise up to the point where the two calculations tie, every year, and that still holds: it costs her nothing new. But a tie is no gap, so the credit returns nothing. Her $100,500 sits flat.

She exercises everything in 2026. The 20,000 shares carry $308,000 of spread. The AMT calculation jumps to $105,100, the regular one stays at $30,700, and instead of collecting $8,700 she writes another $74,400 check. The credit grows to $174,900.

None of these is a mistake. But every new exercise is a decision to keep lending, and most people make it without noticing.

What happens when my company runs a tender offer?

Selling is what brings the credit back, usually a lot of it at once.

A tender offer is a window in which a private company lets employees sell some of their shares, usually to the investors in a new round. In February 2026 Francesca's company raised a Series C and let employees sell a quarter of their holdings at $25. She sold 10,000 of her 40,000 exercised shares for $250,000. Her exercise was eight months old.

An ISO sale gets the long-term capital gains rate on the whole gain only if you hold the shares more than a year past exercise and two years past grant. Sell earlier and it is a disqualifying disposition: the spread is taxed as ordinary income, like a bonus, and only the growth above the exercise-day price is a capital gain. Francesca's grant was old enough. Her exercise was not.

The credit came back, far more than the $8,700 she gets by sitting still. The sale raised her regular calculation and lowered her AMT calculation at once, because the AMT measures her gain from $10.60, not $0.60. Form 6251 line 2k carries a negative $100,000, the $10 spread on the 10,000 shares she sold: taxed last year, subtracted back out this year. A wider gap means a bigger repayment.

Selling in February cost her $39,600 more in tax than waiting four months for the anniversary: wage rates instead of 15% on the $100,000 spread, and short-term rates on the $144,000 of growth. The larger credit helps but does not cover it. If the anniversary is close and the window will still be open, wait. If not, take the window. Tender offers are not annual events, and plenty of companies never run one.

Nobody withheld tax on the sale. ISO income is exempt from payroll tax, no withholding is required, and when the sale runs through a tender platform it often never reaches a W-2. The $100,000 is hers to report, on a return where the tender looks like an ordinary stock sale. People miss it constantly, and a return that treats the whole $244,000 as a plain gain never subtracts the spread on line 2k, so the AMT taxes the same $100,000 twice.

So what do I do the year after I trigger AMT?

Keep the Form 6251 from the year you exercised. It is the only record of the second price. File Form 8801 every year, including the years it returns nothing, because this year's form is next year's starting balance. Before you exercise again, ask what it does to the credit, not just to this year's bill. Before a tender, find the exercise anniversary. Month eleven is a different decision from month eight.

The AMT is described as a tax on paper gains. It is also a loan you made to the Treasury, at zero interest, on terms the Treasury sets. You cannot ask for it back. You can stop extending it, by not exercising more, or collect it faster, by selling. Every share you buy or sell from here is a decision about the terms.

Know your second price. The rest is arithmetic.