8574 / What is the alternative minimum tax and how is it calculated?

In addition to regular income tax, the alternative minimum tax (AMT) is an additional tax that certain taxpayers must pay. In theory, the purpose of AMT is to prevent high income taxpayers from taking advantage of tax benefits (such as exclusions, deductions and credits) to substantially reduce or even eliminate their tax liability. However, in reality, due to complex rules, many relatively low income taxpayers may become subject to AMT.

The AMT is calculated as follows:

(1)  compute alternative minimum taxable income (AMTI, see Q 8576);

(2)  subtract the exemption amount from AMTI; and

(3)  multiply the remaining AMTI (step (2), above), by the applicable AMT rate.

For purposes of sheltering lower income taxpayers from being subject to AMT, the Code exempts certain amounts of income. Only AMTI in excess of the exemption amount is subject to AMT. The 2025 (projected) exemption amounts are as follows:²