Who Has To Pay the Alternative Minimum Tax?

Young woman preparing her tax return at her kitchen table
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High-income earners usually have to pay the Alternative Minimum Tax (AMT). This tax is triggered when taxpayers have more income than an exemption amount that can be adjusted annually to keep pace with inflation. You must calculate your tax twice if your income is greater than the AMT exemption. Calculate the regular income tax you'd owe first, then figure the AMT by adding back in certain deductions that you claimed. You must then pay the tax that's the highest.

The AMT exemption was $118,100 for joint filers and $75,900 for individuals in 2022, the tax year for which you'll file a return in 2023. It is $126,500 and $81,300 respectively for tax year 2023.

Key Takeaways

  • People in high-income tax brackets pay the Alternative Minimum Tax (AMT) as a way for the IRS to ensure they pay their fair share in taxes.
  • The tax does not include most deductions that can reduce your taxable income.
  • AMT rates are 26% or 28%, depending on where your income falls in the AMT threshold. 
  • You must calculate any AMT you might owe if your adjusted gross income (AGI) exceeds the exemption level, then you must pay that tax or your regular income tax, whichever is more.

The History of the Alternative Minimum Tax (AMT)

The AMT often affects married taxpayers with children for several reasons. First, they often have higher incomes if both parents are working. Second, the AMT doesn't provide additional exemptions for each household member they support.

Congress first created a simplified version of the Alternative Minimum Tax in 1969. It was originally known as the "millionaires' tax." It was designed after the Internal Revenue Service (IRS) discovered that 155 millionaires paid no taxes in 1969 because they were able to claim significant tax deductions that weren't available to the average worker. The idea was to make sure that wealthy Americans didn't get away tax free by employing this tactic.


The Reagan administration created a version of the AMT to include more widespread exemptions and deductions.

Congress applied a higher tax rate on incomes that reached a certain level. The AMT added the personal exemption, state and local taxes, and the standard deduction back to taxable income. It targeted deductions like union dues and some medical costs. Reagan's AMT tax reform eliminated the more exotic investment deductions that had been used predominantly by the very wealthy.

But Congress didn't adjust the income levels for inflation at that time, so more and more middle-income families began to find that they were subject to the AMT simply because they were earning a bit more due to inflation. Congress then passed a "patch" each year to prevent that from happening.

The American Taxpayer Relief Act automatically adjusted the income thresholds to keep up with inflation in 2013.

How the AMT Works

The AMT is different from the regular tax rate because it doesn't include the standard deduction or most itemized deductions in its calculations. Some of these itemized deductions include state and local income taxes, foreign tax credits, and employee business expenses. Real estate taxes and personal property taxes are not deductible under AMT rules.


The AMT can include other income streams that aren't counted by regular income tax rules. The AMT is higher than the regular tax in many cases for this reason.

Other income streams that may be included in AMT calculations include:

  • The fair market value of incentive stock options that were exercised but not sold
  • Otherwise tax-exempt interest from private activity bonds
  • Foreign tax credits
  • Passive income and losses
  • Net operating loss deductions

There are only two AMT tax rates as of 2023: 26% and 28%. The 28% AMT rate applied to taxpayers with AMT-calculated incomes of $206,100 in tax year 2022. The same rate applied whether you were single in that tax year or filing a joint married return. But married taxpayers who filed separate returns hit this threshold at AMT incomes of just $103,050. These thresholds are $220,700 and $110,350 respectively for tax year 2023.


The AMT exemption begins to disappear and phase out after you reach a certain income level, but these are very high thresholds: $539,900 for single filers and $1,079,800 for married taxpayers of joint returns for tax year 2022, and $578,150 and $1,156,300 respectively for tax year 2023.

How To Calculate the AMT

You only have to concern yourself with the AMT if your adjusted gross income (AGI) exceeds the exemption for your filing status. You would then have to calculate your alternative minimum taxable income and pay the higher tax.

Calculating the AMT you might owe begins with adding certain disallowed deductions back to your income to arrive at your AMT income. Subtract the AMT exemption for your filing status from this amount. Then multiply the balance by either 26% or 28%, depending on your income. You can then subtract the amount of that tax year's AMT foreign tax credit, if applicable.

You can also calculate your AMT income on IRS Form 6251. The form walks you through the steps. And tax preparation software will take care of all this number crunching for you.

Can You Avoid the AMT?

You can adjust your spending as you head into a new year to reduce the AMT if your earnings are such that you'll have to calculate and possibly pay it. This can involve how you approach certain tax deductions that must be added back to your income for purposes of calculating the AMT. Some methods include:

  • Make sure your state tax withholding isn't higher than your expected payment because state tax payments aren't deductible under the AMT.
  • Pay your property taxes only when they're due. Don't prepay your next installment by the end of the year because the payment will affect that tax year.
  • Sell incentive stock options in the same year you exercise them. The value of the exercised options becomes income for AMT purposes if you exercise the options but don't sell.

Frequently Asked Questions (FAQs)

What percentage of income goes to taxes?

Federal income taxes have seven tax brackets ranging from 10% to 37%. It's a progressive tax, so you're taxed at a higher rate as your income increases. The first $11,000 of your income will be taxed at 10% in the 2023 tax year if you're a single filer, then any income you had of $11,000 up to $44,725 would be taxed at 12%.

How can you reduce the alternative minimum tax?

You'll have to reduce your adjusted gross income to reduce the AMT through adjustments to income that aren't affected by the tax. Consider contributing the maximum amount to a 401(k) or another qualified retirement plan. You can also contribute to a health savings account (HSA) if you have a high-deductible health plan. Consider switching to more tax-efficient investments in your taxable investment accounts.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."

  2. Tax Policy Center. "What Is the AMT?"

  3. Tax Policy Center. "What Did the America Taxpayer Relief Act of 2012 Do?"

  4. Tax Foundation. "2022 Tax Brackets."

  5. Tax Foundation. "2023 Tax Brackets."

  6. IRS. "Topic No. 556 Alternative Minimum Tax."

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