What is the Alternative Minimum Tax (AMT)?
As the name says, it's an "alternative" tax rate which is calculated at the same time as your regular taxes. If the alternate method results in a higher tax, the difference between it and your regular tax is the AMT amount you'll have to pay.
We'll let you know if you owe this tax (most taxpayers won't). If you have to pay the AMT, it'll be on Form 1040, line 45. We'll also include Form 6251, which shows the AMT calculations. Your final refund or taxes owed amount will already include the AMT – you don't pay it separately.
The AMT was conceived in 1969 to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn't avoid paying their fair share of income tax. As time went on, the AMT began to affect the middle class because it wasn't adjusted for inflation. Congress finally adjusted the AMT for inflation in 2013, reducing the numbers of middle-class and other non-wealthy taxpayers who will be subject to the AMT in the future.
Because the AMT was designed to close tax loopholes, it's difficult to avoid. Ironically, investing in tax shelters may actually increase your chances of paying the AMT.