What is the Alternative Minimum Tax (AMT) and Do I Have to Pay It?
The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn't avoid paying income taxes.
But because the tax was not adjusted for inflation, over the years the AMT began to reach down into the middle class. Temporary fixes were passed to keep the AMT from spreading to taxpayers who aren’t considered wealthy, with a permanent fix passed in 2013.
As the name says, it’s an “alternative” tax. It’s calculated at the same time as your regular taxes. If the alternate method results in a higher tax, the difference between it and your standard tax bill is the AMT. Taxpayers who fall under the AMT pay an average of $2,000 in additional federal income taxes than they would without this alternative tax.
TurboTax will calculate this as you’re doing your taxes and let you know if you owe this tax.
Unfortunately, there are no definitive guidelines for avoiding the AMT. It's determined by multiple factors, but most likely you won’t be affected.
If you would like a heads-up before you file, we can help. TurboTax offers a quick and easy way to learn if you'll be affected by the AMT using our free tax calculator, TaxCaster2014. It estimates what your 2014 taxes are likely to be, whether you will owe AMT and how much.
Taxpayers who have higher than average incomes, are married and have more than two children, own a home and live in a state with high incomes taxes, such as California, New York and Michigan.
The AMT affects such taxpayers because it won't let them count certain deductions that would otherwise lower their taxes, such as dependents or children, state income taxes, property taxes, interest on second mortgages or home-equity loans and high medical expenses.
We wish we could tell you an exact income level, or the amount of deductions, that cause the AMT to kick in. Unfortunately, we can't, because the AMT uses varying amounts from many areas of your tax return.
Most people affected by it can’t get around it. The AMT was designed to limit or close loopholes – so it's very difficult to avoid.
For an in-depth understanding of the AMT, see IRS Tax Topic 556.
For tax returns not affected by the AMT, you are allowed to claim certain tax breaks that reduce your taxable income and taxes owed.
With the AMT, these benefits are reduced or eliminated. You do get a deduction known as an AMT exemption.
The exemption amounts for 2014 are $52,800 for individual taxpayers, $82,100 for married taxpayers filing jointly and surviving spouses, and $41,050 for married persons filing separately.