If you haven't paid Alternative Minimum Tax in years, you may have stopped thinking about it entirely. The Tax Cuts and Jobs Act pushed the phaseout thresholds so high that AMT became nearly irrelevant for most high earners. That changed in 2026.
The One Big Beautiful Bill Act made a structural change to the AMT that's going to catch a meaningful number of people — particularly startup employees with Incentive Stock Options, residents of high-tax states, and anyone with variable income events. Here's what shifted and how to figure out whether it affects you.
What Is the AMT?
The Alternative Minimum Tax is a parallel tax system designed to ensure that high-income taxpayers pay at least a minimum amount of federal tax regardless of deductions and credits. You calculate your taxes under the regular system and under the AMT, then pay whichever is higher.
The AMT adds back certain items that reduce your regular taxable income — including the spread on ISO exercises, SALT deductions, and certain depreciation adjustments — then applies its own rate structure to the result. The AMT rate is 26% on the first $244,500 of AMT income above the exemption, and 28% on amounts above that (Tax Foundation).
What the OBBBA Changed — and Why It Matters More Than Headlines Suggested
The OBBBA made the higher TCJA exemption amounts permanent and indexed them for inflation. That's the part most coverage led with. The 2026 AMT exemption is $90,100 for single filers and $140,200 for married filing jointly (U.S. Bank, Tax Specialty).
But the OBBBA also made two structural changes that significantly expand who gets hit:
1. Phaseout thresholds dropped sharply. In 2025, the AMT exemption phaseout didn't begin until $626,350 for singles and $1,252,700 for married filers. Starting in 2026, those thresholds drop to $500,000 for singles and $1,000,000 for joint filers — a reduction of roughly 20% (U.S. Bank).
2. The phaseout rate doubled. Under 2025 rules, every dollar above the threshold reduced your exemption by 25 cents. Starting in 2026, it's 50 cents — the exemption disappears twice as fast (KLR).
The combined effect: for a married couple, the AMT exemption is fully phased out at approximately $1.28 million of AMT income in 2026, compared to roughly $1.8 million under 2025 rules (Wealthspire).
The Hidden Effective Rate in the Phaseout Zone
This is the part most blog posts don't explain clearly. In the phaseout zone, you're not just losing exemption — you're paying AMT on the income and on the exemption being clawed back simultaneously.
Illustrative example (hypothetical — individual results will vary): A married couple sees their income increase by $100,000 within the phaseout zone. They owe AMT at 28% on that $100,000 — that's $28,000. But at a 50% phaseout rate, they also lose $50,000 of exemption, which is itself taxed at 28% — adding another $14,000. Total additional tax: approximately $42,000 on a $100,000 income increase, for an effective marginal rate of roughly 42% (Our Tax Partner).
That's not a marginal rate most people expect to see on income that doesn't look unusual.
Who Is Most Exposed in 2026
Startup employees exercising ISOs. The spread between the exercise price and fair market value of Incentive Stock Options is not taxable under the regular tax system — but it is an AMT preference item. With lower phaseout thresholds and a faster phaseout rate, more ISO exercises will trigger AMT in 2026 than in recent years (Basswood Counsel).
Residents of high-tax states. SALT deductions are disallowed under AMT. The OBBBA raised the SALT cap for regular tax purposes, but that relief does not carry through to the AMT calculation — meaning the SALT deduction expansion actually increases AMT exposure for some taxpayers near the phaseout threshold (Venable LLP).
Married households earning $1M to $1.5M. This is the core AMT exposure zone under 2026 rules — income above the $1M phaseout start but below full exemption wipeout at ~$1.28M (Wealthspire).
Investors in private activity bonds. Interest that is tax-exempt for regular tax purposes remains taxable under AMT. Lower thresholds mean this income creates exposure earlier (Basswood Counsel).
Households with uneven income timing. Large bonuses, deferred comp payouts, or concentrated capital gains in a single year create disproportionate AMT exposure under the new phaseout structure (Wealthspire).
The ISO Exercise Decision in 2026
If you have Incentive Stock Options and you've been planning to exercise them, the 2026 AMT changes are a direct input to that timing decision. The spread on exercise is an AMT preference item — it gets added to your AMT income even though it doesn't appear on your W-2.
In years past, the high TCJA phaseout thresholds meant many people could exercise ISOs without triggering AMT. In 2026, that calculation is materially different. The right answer depends on the size of the spread, the company's valuation, whether the stock is liquid or illiquid, and your other income sources — this isn't a generic analysis.
One note worth knowing: if you do pay AMT in a given year, you may be able to recover some of it in future years through the AMT credit (Form 8801), which can offset regular tax when your income drops below the phaseout zone. This doesn't eliminate the exposure, but it does change how you should think about multi-year planning (Tax Specialty).
What to Do Before Year-End
Run a projection before year-end, not in April (aka now). Model your AMT exposure before any ISO exercises, large capital gains events, or deferred comp distributions. Key levers to discuss with your advisor or CPA:
- Timing of ISO exercises — spreading across years, or using disqualifying dispositions strategically
- MAGI management — pre-tax 401(k) contributions, HSA contributions, and deferred comp elections can reduce the income that triggers the phaseout
- Capital gains timing — bunching large gains into a single year magnifies AMT exposure; spreading them can help
- PTET elections — if you own a pass-through business in California, the PTET election may reduce SALT-related AMT exposure
RYSE Financial Works With High-Income Professionals Across Los Angeles, OC, and the IE
If you have ISOs, RSUs, variable income, or are approaching seven-figure household income in 2026, an AMT projection should be part of your financial plan this year — not an afterthought in March.
We work with tech professionals, physicians, and startup employees across the Greater Los Angeles area, Orange County, and the Inland Empire.
This post is for educational purposes only and does not constitute tax, legal, or investment advice. Tax law is complex and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.