Alternative Minimum Tax

Alternative minimum tax, aka AMT, is an additional tax that some people with higher incomes are required to pay in addition to paying regular income taxes. The idea behind the alternative minimum tax was to ensure that certain people would not find ways to avoid paying taxes through the use of shelters and loopholes that would otherwise protect a good share of the income earned each year from being taxed.

Unfortunately, the AMT has since been expanded and now affects many tax payers who do not have very high incomes, particularly those who claim tax credits for having multiple children or who have a second home.

There have been several attempts from Congress to repeal or change the rules governing the alternative minimum tax, but each time Congress attempts to make changes to the alternative minimum tax definition, it dies in committee without ever getting passed.

Alternative Minimum Tax Calculator


The alternative minimum tax calculator is used to determine how much tax an individual is required to pay. The calculation determines whether or not a household has paid enough tax using the regular tax tables, and if they have not and the taxable amount falls below a specified minimum amount, then the AMT kicks in and increases the amount due. To determine whether or not you have to pay AMT, you must complete tax form 6251.

The alternative minimum tax rate ranges from 26% to 28% depending on the income level of the individual or household being required to pay the tax. Regular tax rates start as low as 10%. In any year that you are required to pay the extra tax, the following year you may be eligible to take alternative minimum tax deductions based on what you paid. The only way to be eligible for the deduction is if you paid alternative minimum tax due to exercising certain stock options, the timing of which placed you in a higher tax bracket than normal.

Determining When You Owe Alternative Minimum Tax


After calculating the amount of tax you owe under the regular tax table, you then compare that amount with the AMT due for that income bracket. If you’ve paid the same or more, you do not owe; if it is less, then you have to pay the AMT instead. For example, if your regular tax amount is $50,000 and the AMT is $40,000, you would owe no alternative minimum tax; however, if your regular tax amount was $50,000 and the AMT was $60,000, you would owe additional tax. Not all of the tax, however, would count as alternative minimum tax; only the additional $10,000 would be considered an alternative minimum tax payment, so only that amount could potentially be deductible. In other words, the only amount you are allowed to take as a deduction in the following year is the difference between your regular tax amount and the alternative minimum tax amount. Report and pay the alternative minimum tax using form 6251.
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