The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high-income taxpayers pay at least a minimum level of tax, even if they qualify for deductions and credits that reduce their regular tax liability. The AMT is meant to prevent individuals from using excessive tax breaks to avoid paying federal income tax.
Taxpayers affected by the AMT must calculate their tax liability twice:
- Regular tax liability: Using the standard tax brackets and deductions.
- AMT liability: Using the AMT rules, which disallow many deductions and credits.
If the AMT calculation results in a higher tax liability than the regular calculation, the taxpayer must pay the higher AMT amount. Common adjustments under the AMT include the disallowance of:
- State and local tax deductions.
- Medical expense deductions.
- Miscellaneous itemized deductions.
For 2023, the AMT exemption amounts are:
- $81,300 for single filers.
- $126,500 for married couples filing jointly.
The AMT primarily affects high-income taxpayers with significant deductions. Taxpayers should work with a tax professional to determine whether they are subject to the AMT and how to minimize its impact.