The Alternative Minimum Tax (AMT) is a parallel tax system in the U.S. designed to ensure that high-income taxpayers who take advantage of many deductions and tax breaks still pay at least a minimum amount of tax. It's one of the more complex areas of the tax code. While the Tax Cuts and Jobs Act of 2017 significantly reduced the number of people subject to the AMT, it can still affect individuals with high incomes and specific types of deductions. Our AMT Calculator provides a simplified estimate to help you determine if you might be at risk of owing this extra tax.
How to Use the AMT Calculator
Getting a rough estimate of your potential AMT liability involves a few key inputs:
- Enter Your AGI: Input your Adjusted Gross Income from your Form 1040.
- Enter State & Local Taxes Paid: Provide the total amount of state and local taxes (SALT) you paid, as this is a major "add-back" for the AMT calculation.
- Select Filing Status: Choose your filing status (Single or Married Filing Jointly) to apply the correct AMT exemption amounts.
- Estimate Your AMT: Click the button to see your estimated Alternative Minimum Taxable Income (AMTI) and your Tentative Minimum Tax.
Understanding the Alternative Minimum Tax
The AMT was originally created in 1969 after a report revealed that a small number of very high-income households were able to use so many deductions that they paid no federal income tax at all. The AMT was designed as a backstop to prevent this.
Think of it this way: you essentially calculate your taxes twice. First, you calculate your tax liability under the regular income tax system. Second, you calculate it under the AMT system, which has a different set of rules, fewer deductions, and its own tax rates. You are then required to pay whichever of the two tax bills is higher.
Calculating Alternative Minimum Taxable Income (AMTI)
The starting point for the AMT is your regular taxable income. You then have to "add back" certain deductions and preferences that are allowed under the regular tax system but not under the AMT. This process results in your Alternative Minimum Taxable Income (AMTI).
Some of the most common add-backs include:
- State and Local Taxes (SALT): The deduction for state and local income, sales, and property taxes (up to the $10,000 SALT cap) must be added back. This is the most common item that triggers the AMT.
- The Standard Deduction: If you take the standard deduction, it must be added back. You cannot claim it for AMT purposes.
- Interest on certain private-activity bonds: While often tax-free for regular tax purposes, this interest is taxable under the AMT.
- Incentive Stock Options (ISOs): The bargain element (the difference between the market price and your exercise price) when you exercise ISOs is a significant preference item that must be added back to calculate AMTI.
The AMT Exemption and Tax Rates
After calculating your AMTI, you are allowed to subtract an AMT exemption amount. This exemption is quite large, which is why most people are not subject to the AMT. However, this exemption begins to phase out for high-income earners.
Once the exemption is subtracted, the remaining AMTI is taxed at two rates: 26% on the first portion (up to $232,600 for 2024) and 28% on any amount above that. The resulting figure is your "tentative minimum tax." If this tentative tax is higher than your regular income tax liability, you owe the difference as AMT.
Frequently Asked Questions About the AMT
Who is most likely to be affected by the AMT?
Before 2018, many upper-middle-class families, especially in high-tax states, were subject to the AMT. The Tax Cuts and Jobs Act of 2017 significantly increased the AMT exemption amounts and the phaseout thresholds, meaning far fewer people pay it now. Today, it's most likely to affect high-income individuals with significant income from sources like incentive stock options or those with very high state and local tax deductions that still create a large preference item.
Is there a credit for prior year minimum tax?
Yes. If you pay AMT in one year due to "deferral" items (like exercising incentive stock options), you may be able to claim a tax credit in future years to recover some of the AMT you paid. This is calculated on Form 8801, Credit for Prior Year Minimum Tax. The credit essentially ensures you are not double-taxed on the same income over time.
Does this calculator provide a definitive answer on whether I owe AMT?
No, this is a simplified estimator designed to give you a general idea of your potential exposure. The actual AMT calculation on Form 6251 is highly complex and involves many more potential preference items and adjustments than are included here. If this calculator indicates you might be close to owing AMT, you should consult a tax professional or use professional tax software for an accurate calculation.
How do incentive stock options (ISOs) trigger the AMT?
When you exercise an ISO, the difference between the fair market value of the stock and the price you paid for it (the "bargain element") is not considered income for regular tax purposes at that time. However, it *is* considered income for AMT purposes. A large bargain element can significantly increase your AMTI, potentially pushing you into owing AMT for that year, even if you haven't sold the stock yet.