Alternative Minimum Tax Definition

The alternative minimum tax is a different way to calculate taxes. It applies to high-income earners and is meant to limit the tax benefits that some taxpayers use to reduce their regular tax bill. This article discusses what the alternative minimum tax is, who pays it, and how to calculate it. 

What is the alternative minimum tax? 

The alternative minimum tax (or AMT) is another method to use when calculating taxes. This is a separate and additional calculation from the regular federal income tax. The AMT has its own tax rates, and the Internal Revenue Service (IRS) adjusts the AMT each year for inflation. 

The purpose of the AMT is to reduce or eliminate some tax breaks that taxpayers use to lower their tax bill. 

It works by capturing certain types of income that aren’t regularly taxed. Taxpayers calculate their regular federal income tax bill and their AMT bill — using IRS Form 6251: Alternative Minimum Tax – Individuals — to see if there’s any difference. If there is, the taxpayer must pay the AMT in addition to their regular tax amount. 

Who pays the alternative minimum tax?

Those who earn more than the exemption amount set by the IRS must calculate the AMT. The exemption amount is the amount of income taxpayers can earn before triggering the AMT. Here’s a breakdown of the 2026 AMT exemption amounts:

• Single or head of household: Up to $90,100
• Married, filing jointly: Up to $140,200

Taxpayers who exceed those amounts may owe the AMT. The AMT exemption amount phases out at certain income levels, meaning at some point, you can’t exempt any income from the AMT. 

The AMT rates are 26% and 28%, depending on the individual’s income level. In 2026, the first $244,500 of alternative minimum taxable income are taxed at a 26% rate, while it jumps to 28% for income beyond that threshold.

If in doubt, it’s wise to consult the IRS’s website or talk to a professional to discuss whether the AMT applies.

Alternative Minimum Tax Examples

To better understand the AMT, let’s go over an example. Mary is a single person who earned $105,000 last year. Since her income is more than $90,100 but less than $244,500, her AMT rate is 26%. So she subtracts the $90,100 exemption amount from her $105,000 income and is left with $14,900. The AMT is 26% of $14,900, which comes to a tax bill of $3,874. Now she has to compare this amount to her regular federal income tax obligation to see if there’s a difference in the numbers. 

Are there any alternative minimum tax benefits?

One of the alternative minimum tax advantages is that an individual may be able to get a tax credit. If someone paid the AMT in a previous year or years, but you’re not liable for the AMT in the current year, they might be eligible for a special minimum tax credit to use against their regular tax bill this year. They’ll use IRS Form 8801, Credit for Prior Minimum Tax – Individuals, Estates, and Trusts to claim the credit. 

Summary

The alternative minimum tax definition is that it’s an additional tax for individuals who earn a certain amount of income. It closes the loophole so that taxpayers can’t significantly reduce their tax payments. 

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