What Is the Alternative Minimum Tax?

Tax Planning

What Is the Alternative Minimum Tax?

Every year more taxpayers must come to terms with the alternative minimum tax (AMT).

The AMT is a parallel tax system that operates in the shadow of the regular tax. It was designed to prevent the use of excessive tax breaks, after Congress, in 1969, noticed 155 high-income earners were legally using so many deductions that they were paying much less tax than lower-income classes.

So Congress instituted an "alternative" tax system with the aim of making tax collecting fairer. But since the AMT was never indexed to inflation -- and the regular income tax is -- each year, more and more middle-income taxpayers are snared by a tax originally targeted at the rich.

In recent years, Congress has passed an annual temporary "patch" to limit the expansion of the AMT to taxpayers who were never intended to pay it. (Learn about the 2007 AMT patch.)

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Under AMT rules, many deductions and pre-tax benefits are disallowed. This means that taxpayers will report a higher adjusted gross income under the AMT system.

• To figure out whether you owe any additional tax under the alternative minimum tax system, you need to fill out Form 6251.

(Click here: Let us walk you through the AMT form line by line.)

• If the tax calculated on Form 6251 is higher than that calculated on your regular tax return, you have to pay the difference as AMT. It can result in you paying hundreds or thousands of dollars in additional taxes.

Return to the AMT Tax Guide