how the alternative minimum tax works
the difference between a taxpayer s alternative minimum taxable income and his amt exemption is taxed using the relevant rate schedule this yields the tentative minimum tax tmt if the tentative minimum tax is higher than the taxpayer s regular tax liability for the year then they pay the regular tax and the amount by which the tentative minimum tax exceeds the regular tax in other words the taxpayer pays the full tentative minimum tax 1there are two alternative minimum tax rates 26 and 28 for 2023 the 28 rate applies to the excess alternative minimum taxable income of 220 700 or more for all taxpayers 110 350 for married couples filing separate returns for 2024 the 28 rate applies to the excess alternative minimum taxable income of 232 600 or more for all taxpayers 116 300 for married couples filing separate returns the 26 rate applies to incomes up to those levels 56a taxpayer who has a high income and uses large tax breaks may owe a smaller percentage under the standard rules if so the taxpayer is obliged to recalculate the taxes owed under the alternative minimum tax system which eliminates some of those tax breaks the taxpayer will owe whichever amount is higher 7 the first individual minimum tax was enacted in 1969 and was an add on minimum tax that is it was a tax that was paid in addition to the regular income tax the tax rate for the add on minimum tax was 10 and its tax base consisted of eight tax preference items the most significant of these tax preference items was the portion of capital gains income that was excluded from the regular income tax congressional research service8amt exemption amountsfor tax year 2023 the figures are 81 300 for single filers and 126 500 for married joint filers for tax year 2024 the amt exemption for single filers is 85 700 for married joint filers the figure is 133 300 3taxpayers have to complete form 6251 to see whether they might owe amt first they subtract the exemption amount from their income if their amt is less than the exemption they do not have to pay amt 1it s important to note though that taxpayers with amti over a certain threshold do not qualify for the amt exemption for tax year 2023 the phase out begins at 578 150 for single filers and 1 156 300 for tax year 2024 the phase out begins at 609 350 for single filers and 1 218 700 for couples filing jointly 3purpose of amtamt is designed to prevent taxpayers from escaping their fair share of tax liability through tax breaks however in the past the structure was not indexed to inflation or tax cuts this can cause bracket creep a condition in which middle income taxpayers could be subject to this tax instead of just the wealthy taxpayers for whom amt was invented 9 in 2012 however congress passed a law indexing the amt exemption amount to inflation 4calculating amtto determine if they owe amt individuals can use tax software that automatically does the calculation or they can fill out irs form 6251 this form takes medical expenses home mortgage interest and several other miscellaneous deductions into account to help tax filers determine if their deductions are beyond an overall limit set by the irs 1011the form also requests information on certain types of income such as tax refunds investment interest and interest from private activity bonds as well as numbers corresponding with capital gains or losses related to the disposition of property the irs has specific formulas in place to determine which portion of this income and deductions the tax filers need to note on form 6251 it uses another set of formulas to determine how these numbers lead to amti 10