FAQs on Alternative Minimum Tax or AMT ?

alternative minimum taxThe Alternative Minimum Tax (AMT) is a parallel tax income system that compels high-income taxpayers to compute  their tax liability twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs compare the two and pay the higher of the two. Here is how  AMT tax applies:

Say your tax computes at $41,000. As per law ,you need to compute tax under AMT also and that comes to  $36,000. Since the AMT is lower than the normal tax, you are not subject to the AMT. If AMT would have bee $44,000 , then you would have to pay AMT and not normal tax

When does Alternative Minimum Tax Trigger ?

Two factors are necessary for the application of alternative minimum tax on you. Your income should be more than the threshold and you earn  certain types of income or if claim certain kinds of deductions.

Some of those types of income or deduction that will put liability of AMT payment are :

  • Income or (loss) from tax-shelter farm activities or passive activities.
  • Tax-exempt interest from private activity bonds.
  • Exercising incentive stock options (ISO).
  • Gain or loss from the disposition of certain kinds of property
  • Significant interest paid on a home mortgage not used for home purpose.
  • High state & local taxes.
  • High medical expenses.
  • Net operating loss deduction.
  • Intangible drilling, circulation, research, experimental, or mining costs.

The easiest way to figure your AMT is to use tax return preparation software (including Free File) which will automatically calculate your tax, including any AMT.

AMT Exemptions Threshold

In order to keep the  low- and middle-income taxpayers out of AMT , various exemption thresholds have been prescribed .If your taxable income is less than the  exemption threshold given in the table below , you are not to pay any alternative minimum tax  .

Alternative Minimum Tax Exemptions
Filing Status 2017 2018
Single $54,300 $55,400
Married Filing Jointly $84,500 $86,200
Married Filing Separately $42,250 $43,100
Trusts & Estates $24,100 $24,600
Source: IRS.

Alternative Minimum Tax Exemption Phaseout Threshold

The basic  exemption for AMT is to protect low income earners phases out gradually after a level of income so that this tax is imposed on all high-income taxpayers.Under current law, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2017, the exemption will start phasing out at $120,700 in AMTI for single filers and $160,900 for married taxpayers filing jointly

Filing Status Threshold 2o17 Threshold 2o18
Single $120,700 $123,100
Married Filing Jointly $160,900 $164,100
Married Filing Separately, Estates and Trusts $80,450 $82,050

What is the rate of AMT?

In contrast with normal tax rates which has seven brackets ranging from 10% to 39.6%, the AMT system has only two — 26% and 28%. The normal tax rate is 26 % of AMTI , but the the rate of 28% is applied when the Alternative Minimum Tax income AMT Income is equal or more than specified amount as given in table below for tax year 2017 & 2018  :

Filing Status 2018 Threshold for 28% Rate 2017 Threshold for 28% Rate
Single $191,500 $187,800
Married filing jointly $191,500 $187,800
Head of household $95,750 $93,900
Married filing separately $191,500 $187,800

 

You May Get AMT Tax Credit !

If you’re not liable for AMT in a particular year, but you paid AMT in one or more previous years, you may be eligible to take a special minimum tax credit against your regular tax this year. If eligible, you should complete and attach Form 8801 (PDF)

The AMT Assistant

The IRS operates and offers an AMT Assistant to the general public through its website. This Assistant helps taxpayers determine whether they are subject to the AMT. It requires that the taxpayer enter information from their estimated tax return and, once complete, tells the user whether they are not subject to the AMT or if they must complete Form 6251.

1 Comment
  1. […] If you are wondering about various rules and conditions related to AMT tax , please read FAQs on Alternative Minimum Tax or AMT ? Section 55 of US Code 26 deals with the AMT and the number of  conditions  this provision […]

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