The alternative minimum tax (AMT) is a different method for determining a taxpayer’s tax liability that is intended to ensure that taxpayers do not avoid paying income tax by taking advantage of deductions, exemptions, losses and tax credits. A taxpayer may be subject to the alternative minimum tax if the calculation of their tentative minimum tax exceeds his/her regular tax liability.
One scenario where a taxpayer may have an AMT tax liability is upon the exercise of ISOs. When a taxpayer exercises ISOs, the difference between the strike price and the fair market value of stock at exercise would be added to the taxpayer’s other income for AMT purposes (even though it’s not subject to ordinary income tax).
Determining whether or not you have an AMT liability is complicated and you should always consult with your tax advisors.