Alternative Minimum Tax or AMT
AMT or the
The AMT is a special tax which generally only applies to high income earners which essentially serves to make sure high earned pay their fair share in taxes. Income levels above the tax year based AMT exemption amounts typically trigger the alternative minimum tax.
Exemption amount: $75,900 (Single), $118,100 (Married filing jointly), $118,100 and (Married filing separately) $59,050
Exemption phase out phase out: $539,900 (Single), $1,079,800 (Married filing jointly), $539,900 (Married filing separately)
The Alternative Minimum Tax (AMT) gives an alternative set of rules to calculate your taxable income. These rules determine the minimum amount of income tax that a person at a certain income level should be required to pay. If your regular tax liability falls below the Alternative Minimum Tax amount, you will have to pay the difference as additional Alternative Minimum Tax. You may have to pay some AMT if your adjusted gross income is greater than the AMT exemption amount for your filing status. When you prepare and e-file your tax return on eFile.com, the eFile app will automatically calculate any AMT based on your answers to several tax questions. This is calculated on Form 6251 and reported on your Form 1040, and efiled with your return when applicable.
Who Pays the AMT?
The AMT is a parallel tax system that Congress created as part of the Tax Reform Act of 1969. The original purpose of the AMT was to target a small number of high-income taxpayers who claim many tax credits and tax deductions and end up owing little or no income tax. The Alternative Minimum Tax was intended to keep the tax system as fair as possible and to ensure that all Americans pay at least a minimum amount of income taxes. This is why the AMT is sometimes referred to as a wealth tax on the rich. The problem with the AMT is that it was not indexed for inflation when it was introduced and a number of middle-income taxpayers were subject to the AMT each year. In past years, Congress usually "patched" the AMT by raising the exemption amounts. Beginning in 2013, the AMT was indexed for inflation.
In general, most taxpayers do not need to worry about the AMT; in fact, less than one percent of American taxpayers are subject to the AMT based on their income. This is because an exemption applies and does not begin to phase out until a high income is reached. Most people are exempt unless they make a significant amount of money - refer to the tables below for specifics. This means that most taxpayers do not need to do anything to avoid paying the alternative minimum tax.
You can also refer to the Alternative Minimum Tax Form 6251 for directions - on eFile, this form is filled in for you if the AMT applies to your income.
AMT Exemption Amounts
There is an exemption in place which is adjusted by the IRS each year. If you are worried if you need to pay the AMT, refer to the tables below. If your income is above the threshold for your filing status, then your AMT is considered when filing your taxes. If your AMT is higher than your regular income tax rate, then the AMT will be applied. If you make more than the exemption phaseout amounts listed below the table, then you will owe the AMT. Generally, the AMT does not apply for those making less than the maximum threshold since their income tax rate is often higher.
Instead of trying to calculate this with complicated IRS formulas, simply start your return for free on eFile.com and the tax app will calculate the AMT for you and only apply it if you would owe it. See how to file taxes online by yourself, but not alone - get free tax help before, during, and after filing.
The AMT is similar to the federal standard deduction; it is claimed as an adjustment to your income when claiming the Alternative Minimum Tax. These amounts are below and are classified by filing status and tax year.
The exemption has a phaseout period for alternative minimum taxable income, or AMTI.
For Tax Year 2023, the phaseouts are:
- Married filing jointly taxpayers and widowers: $1,156,300
- Single, married filing separately, and head of household taxpayers: $578,150.
For Tax Year 2022, the phaseouts are:
- Married filing jointly taxpayers and widowers: $1,079,800
- Single, married filing separately, and head of household taxpayers: $539,900.
For Tax Year 2021, the phaseouts were:
- Married filing jointly taxpayers and widowers: $1,047,200
- Single, married filing separately, and head of household taxpayers: $523,600.
For Tax Year 2020, the phaseouts were:
- Married filing jointly taxpayers and widowers: $1,036,800
- Single, married filing separately, and head of household taxpayers: $518,400.
This is a 25% phaseout period; for every dollar over the amount, 25 cents of that dollar is reduced from the exemption. eFile will calculate this for you as you work on your taxes.
Alternative Minimum Tax Rates
Below, find the rates of AMT by tax year. The tax rates will either be a flat rate of 26% or 28%, depending on the income level. With the exception of married filing separately taxpayers, the rates below apply for all taxpayers subject to AMT. When filing your taxes on eFile.com, the tax app will calculate and compare your AMT to your income tax rate to be sure you are getting the correct tax rates based on your income.
Note: For married couples filing separately, it's half of the respective amount shown.
The eFile.com platform will determine if your specific tax situation applies to any of the above thresholds based on your tax information. When you file online with the eFile Tax App, you do not need to worry about making these calculations.
How the AMT Works
The people who pay the AMT are those generally in the wealthiest classes in America. Generally, the AMT only affects a small group of Americans - specifically, less than 1% of all U.S. taxpayers. This includes those making over a million dollars per year.
In general, most people do not need to worry about avoiding the AMT since they do not fall into it. However, higher income earners can avoid it by minimizing their adjusted gross income through tax deductions, maximizing tax free income, and other tax saving methods.
When you need to pay the AMT, some tax savings or deductions are disallowed:
- You cannot deduct your state and local taxes as an itemized deduction; you can, however, subtract a taxable state refund, as applicable.
- A net operating loss (NOL) deduction is not allowed.
- If you use an incentive stock option or ISO but do not sell it in the year you received it, then this is generally not taxed; if you pay the AMT, then you may be subject to taxes on any realized gains.
- Certain assets that you are depreciating may be subject to AMT.
- The foreign tax credit is modified or limited if you need to pay the AMT.
In addition to falling into a traditional tax bracket and calculating your due tax this way, your Alternative Minimum Tax will serve as a separate tax for filing to assure a "fair share" is paid. It uses an exemption like a deduction and is calculated along with your tax return. The AMT rules require taxpayers to calculate their tax liability the normal way, then to calculate it again based on the AMT rules. Any amount of income over the applicable AMT exemption amount may be taxed at the AMT rates. You can use tax credits to decrease the AMT that you owe.
When you prepare your return on eFile.com, we will determine if you are subject to the AMT as well as calculate your tax for you. The eFile app will select the appropriate forms for your tax return; e-filing gets your tax refund to you faster and greatly reduces the chances of making an error on the AMT or other tax calculations.
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