Understanding the Alternative Minimum Tax

Many people are unfamiliar with the alternative minimum tax or don’t have a clear idea of how it works. Basically, though, it’s just an alternative to the standard income tax that some people have to pay. So, you may be wondering, who has to pay it?

Well, it applies to taxpayers who make more than the exemption amount ($109,400 for joint filers and $70,300 for individuals) and who use certain itemized deductions.  

As you can imagine, a great many people are affected by this tax, especially those in higher income brackets. In fact, about 60% of people making from $200,000 to $500,000 will have to pay it.

Fewer Deductions

Unfortunately, some deductions don’t apply to the alternative minimum tax. These include the standard deduction, as well as personal exemptions and certain common itemized deductions.

Itemized deductions not included are state income taxes, local income taxes, employee business expenses, foreign tax credits, real estate taxes, property taxes, interest on home equity  mortgages except in the case of home improvements, and medical expenses unless they exceed 7.5% of your adjusted gross income.

A UniqueTax Rate

The alternative minimum tax rate is either 26% or 28%. The lower amount is for people who make below the AMT threshold, while the higher amount is for people who make more than the threshold amount.

As of 2019, the threshold for AMT taxable income is $194,800 for single people or married couples filing jointly and $95,750 for married couples filing separately.

Feeling Confused?

Feeling confused about the alternative minimum tax and whether or not it applies to you? Don’t worry. You’re not alone. Many people find the AMT a bit puzzling.

If you think you may have to pay it or have questions about if and how it will affect you, don’t stress. Just contact a tax professional to get you all sorted out and to help ensure you file your taxes correctly, AMT or not!