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 parallel 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 that they must pay.
AMT vs. the Normal Tax System
The AMT operates differently than the normal tax system. The AMT system is essentially a flat tax on all income that exceeds a threshold known as an “exemption.” In 2011, for example, the exemption for a single taxpayer was $48,450. Thus, a single taxpayer subject to the AMT in 2011 had to pay a 26% tax on all income between $48,450 and 175,000 and a 28% tax on all income in excess of $175,000. Many of the deductions available in the regular tax system can also lower the amount of income subject to the AMT, but others are not allowed under the AMT system. Taxpayers must calculate the taxes for both systems and then pay the higher of the two amounts.
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 some basic information, then read the IRS article “Six Facts About the Alternative Minimum Tax” 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.