What Is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax (AMT) provides an alternative set of rules used to calculate your taxable income. According to the IRS, 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 AMT amount, you will have to pay the difference as additional Alternative Minimum Tax.

When you prepare your tax return on efile.com, we will automatically calculate any Alternative Minimum Tax based on your answers to several tax questions. 

Why Is There an Alternative Minimum Tax?

The Alternative Minimum Tax is a parallel tax system that was created by Congress 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 could claim so many credits and deductions that they ended up owing little or no income tax. The AMT was intended to keep the tax system as fair as possible and to ensure that all Americans paid at least a minimum amount of income taxes.

Who Must Pay the Alternative Minimum Tax?

The problem with the AMT is that is was not indexed for inflation when it was introduced, and a number of middle-income taxpayers were subject to the Alternative Minimum Tax each year. In past years, Congress usually "patched" the AMT by raising the exemption amounts. Starting in 2013, however, the AMT was indexed for inflation.

You may have to pay some AMT if your adjusted income is greater than the AMT exemption amount for your filing status.

AMT Exemption Amounts

For Tax Year 2016, the AMT exemption amounts are:

Alternative Minimum Tax Rates

Income that is subject to the Alternative Minimum Tax will be taxed at a rate of 26% for the first $186,300 of AMT taxable income, and at a rate of 28% for any amount of AMT taxable income above $186,300.

How the AMT Works

The Alternative Minimum Tax rules require taxpayers to calculate their tax liability the normal way, and 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 nonrefundable credits to decrease the AMT that you owe.

Using efile.com is a great way to make dealing with the AMT much easier. Efile.com will perform all the required calculations for you.

How Do You Know If You Have to Pay Alternative Minimum Tax?

Efile.com tax will determine if you are subject to the AMT, and will select the appropriate forms for your tax return. Don't worry! Efile.com is a great option for everyone, especially taxpayers impacted by the AMT. Plus, efiling gets your tax refund to you faster, and also greatly reduces the chances of making an error on the AMT or other tax calculations.