Taxpayers who pay alternative minimum tax, also known as AMT, meet a minimum income tax payment requirement based on a unique set of rules. Several tax breaks are not available to some taxpayers because of AMT calculations, which results in a higher tax bill. There are two AMT rates: 26% and 28%. Try Beem’s Tax Calculator to get a accurate estimate of your federal and state taxes.
What is AMT?
An alternative minimum tax is usually triggered if an individual’s income is greater than the annual exemption amount for the AMT. The AMT is paid by taxpayers with high incomes who calculate their income tax twice – according to regular tax rules and according to the stricter AMT rules – and pay the higher amount owed.
AMT Exemption Amounts for 2022
(for taxes due in April 2023 or in October 2023 with an extension)
| Single | Married, filing jointly | Married, filing separately | |
| Exemption amount | $75,900 | $118,100 | $59,050 |
| Income at which exemption begins to phase out | $539,900 | $1,079,800 | $539,900 |
In the case of individuals under 24, the AMT exemption amount is equal to their earned income plus $8,200.
AMT Exemption Amounts for 2023
(Extended till October 2024 for tax due in April 2024)
| Single | Married, filing jointly | Married, filing separately | |
| Exemption amount | $81,300 | $126,500 | $63,250 |
| Exemption phase-out at certain income levels | $578,150 | $1,156,300 | $578,150 |
In order to qualify for the AMT exemption, certain individuals under 24 must earn an additional $8,800 above their earned income.
Where Do You Find the Alternative Minimum Tax Calculation?
A minimum tax runs parallel to the standard tax system but with a different tax rate structure and eliminates some common tax breaks. Here is a general explanation of how the calculation works:
- Use IRS Form 6251 to determine which tax breaks are eliminated in AMT calculations.
- Subtract the AMT exemption amount from your taxable income once you’ve calculated the AMT version.
- Calculate the AMT tax rate by multiplying what remains by it. In addition to the 26% AMT tax rate, there is an additional 28% tax rate. Tax rates are determined by your AMT taxable income. Information is provided on IRS Form 6251. (Compare these rates to the seven federal income tax brackets ranging from 10% to 37%.)
- You may be able to deduct the AMT foreign tax credit if you qualify. Under the AMT rules, you have to pay your income tax.
- Under the AMT rules, you pay a higher amount of tax if your income is higher than what you would pay under regular rules. In essence, it determines who is responsible for paying alternative minimum tax.
Tax Breaks You Lose Under AMT
To reduce their taxable income, taxpayers typically look for deductions, credits, and other tax-reduction measures. These breaks may not be available to you under AMT.
Deductions for state and local taxes (such as property taxes) are targeted, for instance. The company curtails a number of business activities.
It is also possible for investors to be subject to AMT. It is possible for your income to be subject to the AMT system if you earn long-term capital gains or certain dividends.
Do I Have to Pay Alternative Minimum Tax?
Once you learn you have to pay AMT when filing your tax return, there isn’t much you can do. The key is to determine whether you’re vulnerable to AMT and what triggers it so you can plan accordingly. Keep an eye on long-term capital gains and maximize your contributions to 401(k), IRAs or health savings accounts to lower your adjusted gross income.
Tax experts can help you reduce or avoid AMT if you suspect that you owe it and need assistance with the additional paperwork.
You’ll be pleased to know that most good tax software will automatically calculate both sets of calculations. When you enter your information, the program in the background will calculate your taxes based on regular tax rules (using Form 1040) and AMT rules (using Form 6251). Check out Beem for tax filing and get the maximum refund.
