2021 Alternative Minimum Tax or AMT
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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 eFile 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, when applicable.
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. 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.
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.
1) 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 prepare on the eFile Tax App, you do not need to worry about making these calculations.
AMT Exemption Amounts
There is also an exemption in place which is adjusted by the IRS each year. 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 2021, these are as follows:
- Married filing jointly taxpayers and widowers: $1,047,200
- Single, married filing separately, and head of household taxpayers: $523,600.
For Tax Year 2022, the phaseouts will be:
- Married filing jointly taxpayers and widowers: $1,079,800
- Single, married filing separately, and head of household taxpayers: $539,900.
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.
How the AMT Works
In addition to falling into a traditional tax bracket and calculating your due tax this way, your Alternative Minimum Tax will serve as an extra, alternative 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 nonrefundable 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 e-File 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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