What Is the Alternative Minimum Tax?

The regular United States tax system allows for numerous deductions, exemptions, and credits that can reduce the amount of tax that an individual must pay. The Alternative Minimum Tax (AMT) is a separate tax system that was put in place to ensure that taxpayers pay at least a minimum amount of taxes. Taxpayers must pay the higher of either the normal tax amount or the alternative minimum tax.

In other words, if a taxpayer uses deductions, exemptions, and credits to lower their normal taxes past a certain amount, the AMT establishes a higher tax liability that they must pay.

AMT vs. the Normal Tax System

The AMT operates differently than the normal tax system. There are alternative rules for calculating your taxable income and taxes owed. The AMT is intended to apply to taxpayers with a high income, with limits on benefits that could reduce the tax amount. The AMT system is essentially a flat tax on all income that exceeds a threshold known as an “exemption."

For tax year 2020, the exemption amount is $72,900 for single filers or $113,400 if married filing jointly. For tax year 2021, the exemption amounts are $73,600 for single filers and $114,600 for married filing jointly. The AMT exemption amount changes to account for inflation.

Taxpayers who are near or above the exemption amount may need to complete both the AMT tax calculations and the regular tax amount. The alternative minimum taxable income (AMTI) is subtracted from the exemption, with the difference taxed at the appropriate tax rate. The tax rate for 2020 is 26% for the first $197,900 of taxable excess ($98,950 if married filing separately), and 28% for any amount over that.

There is also a phaseout limit, where people who make over a certain threshold do not qualify for the AMT exemption. For tax year 2020, the amount to determine the phaseout of the exemption is $518,400 for single filers and $1,036,800 if married filing jointly. At $810,000 or above for single or $1,490,400 or above married filing jointly, the exemption is zero.

Further AMT Resources

Most taxpayers won't have to deal with the AMT, but those that do can find the system confusing and complex. If you wind up having to calculate your AMT to compare it with the normal tax that you owe, the IRS has forms and articles that can help.

To start with, check out IRS Tax Topic 556 for more details. When you're ready to calculate your AMT, use IRS Form 6251 and the accompanying instructions. If you're filing a 1040, you can also use the online AMT Assistant for Individuals if that's easier for you.

Talk to a Tax Attorney Near You

Tax laws can be complicated and trying to figure out how to avoid the AMT can be tricky. If you have questions about your tax filing status and want to reduce your tax liability, contact an experienced tax law attorney in your area for advice.