Alternative minimum tax definition
The alternative minimum tax ensures certain taxpayers pay a minimum amount by using a separate calculation that limits deductions and exclusions.
Some higher-income taxpayers can significantly reduce their tax liability with deductions and credits. The alternative minimum tax (AMT) was created to ensure that these taxpayers still pay a base amount by requiring a separate tax calculation that disallows or limits certain deductions and exclusions that are generally available.
Taxpayers whose financial situations trigger AMT calculate their tax liability twice: once using regular income tax rules and once using AMT rules. They then pay whichever amount is greater.
What triggers the alternative minimum tax?
AMT is usually triggered when a taxpayer has an income over certain thresholds and claims deductions or exclusions that the AMT system doesn’t allow.
For 2025, the AMT income thresholds are:
- $88,100 for single filers
- $68,650 for married individuals filing separately
- $137,000 for married couples filing jointly
Taxpayers with income above these levels, called exemption amounts, need to do the double tax calculation and may be subject to AMT.
Common filing situations that implicate AMT include:
- High state and local taxes: Also known as SALT. These large deductions for state/local income or property taxes aren’t allowed in AMT calculations.
- Incentive Stock Options: Exercising stock options but not selling the stock in the same year can generate income that surpasses the AMT thresholds when there’s a difference between the price paid for the options (called the “strike price”) and the market value of the stock.
- Miscellaneous itemized deductions: Certain job expenses, investment fees, and similar deductions (currently suspended for 2018-2025 under the Tax Cuts and Jobs Act) are not allowed under AMT.
- High income with multiple dependents or large deductions: Because AMT disallows the standard deduction and personal exemptions (also suspended through 2025), some higher-income families fall under AMT rules.
- Interest on private-activity municipal bonds: Although this interest is tax-free under the regular system, it counts as taxable income for AMT purposes
