What is Alternative Minimum Tax

The tax law provides exclusions for certain kinds of income and deductions and credits for certain expenses. The alternative minimum tax (AMT) attempts to ensure that an individual who benefits from certain exclusions, deductions, or credits pays at least a minimum amount of tax.

The AMT is a separately figured tax that eliminates or reduces many exclusions and deductions. In addition, certain credits (generally, business-related credits) cannot be used to offset the AMT. Thus the AMT increases the tax liability of an individual who would otherwise pay less tax. The AMT tax rates on ordinary income are percentages set by law. For capital gains and certain dividends, the rates in effect for the regular tax are used.

You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount. The exemption amounts are set by law for each filing status and are listed in the Form 6251 Instructions.

To find out if you may be subject to the AMT, refer to the Form 1040 Instructions and the Form 1040A Instructions. If you are filing the Form 1040 you may use the AMT Assistant for Individuals, which is an electronic version of the AMT worksheet available on the IRS web page atwww.irs.gov. The AMT worksheet may tell you that you do not owe the AMT or it may direct you to Form 6251, Alternative Minimum Tax – Individuals. If you are directed to Form 6251, you will have to complete that form to determine whether you owe the AMT. Form 6251 (PDF),Alternative Minimum Tax – Individuals, is available in a PDF format on the IRS web page.

If you are not liable for AMT this 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), Credit for Prior Year Minimum Tax – Individuals, Estates, and Trusts.