Definition of AMT trap

Definition

The catastrophic scenario where exercising ISOs triggers a large AMT bill, with no ability to sell the stock to pay taxes, is sometimes called the AMT trap. This infamous problem has trapped many employees and bankrupted people during past dot-com busts. Now more people know about it, but it’s still a significant obstacle to plan around.

Related terms

More from The Holloway Guide to Equity Compensation

Taxes on Equity Compensation › The AMT trap

new In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which increases AMT exemptions and their phaseout thresholds. This means fewer people will be affected by AMT in 2018 than in prior years.

Note that if your AMT applies to events prior to 2008, you’re off the hook.

Understand this topic and talk to a professional if you exercise ISOs. The AMT trap does not apply to NSOs.

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The Holloway Guide to Equity Compensation
Joshua Levy, Joe Wallin, and over 35 contributors
Over 3 hours and 300 linked resources
Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up and made to be improved over time.