Alternative Minimum Tax

What is Alternative Minimum Tax? 

The Alternative Minimum Tax (AMT) is the minimum amount of tax the IRS levies on taxpayers with high income in addition to the regular income tax.  It is a parallel tax system designed to ensure that taxpayers with high-income pay at least a minimum amount of taxes. 

Purpose of Alternative Minimum Tax (AMT) 

AMT helps to ensure that high-income taxpayers contribute their fair share to the federal tax system. It helps prevent taxpayers who might otherwise use deductions and loopholes from paying little to no income tax.   

Over the years, AMT exemption limits have increased due to inflation adjustments. The Tax Cuts and Jobs Act (TCJA) of 2017 raised exemption limits, limiting the number of taxpayers who are subject to the AMT. Additionally, credits have been introduced to help reduce the overall tax amounts. 

How is Alternative Minimum Tax Calculated? 

A taxpayer has to pay AMT only if the tentative minimum tax for the year is greater than the regular taxable income for that year. In simple terms, if the AMT calculation results in a higher tax than the regular tax, the taxpayer must pay AMT. 

The calculation of the Alternative Minimum Tax (AMT) involves several steps, typically determined using IRS Form 6251.  

• Calculate your regular taxable income as per standard tax rules 

• Add back specific AMT tax preference items, such as investment tax credits, capital gains, state and local taxes, interest earned from bonds, and other applicable items.  

• Subtract the predetermined AMT exemption amount. 

• Apply the AMT tax rates to the resulting amount 

• Compare the AMT liability with your regular tax liability. If the AMT liability is higher, you will need to pay the AMT amount.  

Alternative Minimum Tax Exemption Amounts 

The AMT exemption limit is designed to exclude the lower income and middle class from being penalized. 

For 2025, the exemption amount for unmarried individuals has increased to $88,100 ($68,650 for married individuals filing separately) and phases out at $626,350. For married couples filing jointly, the exemption amount increased to $137,000 and phases out at $1,252,700.