The "spread" on an incentive stock option is subject to the alternative minimum tax.

Question

Quizplus · Accepted Answer

The spread (i.e., the difference between the fair market value of the stock on the exercise date and the exercise price) on an incentive stock option is subject to the alternative minimum tax (AMT). This is because the AMT requires taxpayers to add back certain deductions and exclusions, which can include losses on incentive stock options. Therefore, the spread is included in the taxpayer's AMT income, and if the amount of AMT owed is greater than the regular tax owed, the taxpayer must pay the difference.

The "Spread" on an Incentive Stock Option Is Subject to the Alternative