What Is the Alternative Minimum Tax?
What Is the Federal Alternative Minimum Tax (AMT)? The Alternative Minimum Tax is a secondary way of calculating tax debt owed to the government. The law behind the AMT requires taxpayers to calculate their personal tax debts owed using two different formulas. Taxpayers are then required to pay the higher of those two calculations. What Purpose Does the Alternative Minimum Tax Serve? This law was passed as part of the Tax Reform Act of 1969 because some of the very richest people in America were paying lower taxes than low-income tax payers. The AMT was intended to make sure no wealthy person would be able to use as many tax loopholes, exemptions and deductions in order to avoid paying as much in taxes. At the time that the law behind the AMT was passed, the law was aimed at 155 households that had eluded taxes by using tax loopholes. Alternative Minimum Tax Explained: How Could the AMT Affect You? Normally, you calculate the amount of taxes you owe to the government using a standard f
The AMT is a parallel tax system that operates in the shadow of the regular tax, expanding the amount of income that is taxed by adding items that are tax-free under the regular tax system and disallowing many deductions. • To figure out whether you owe any additional tax under the Alternative Minimum Tax system, you need to fill out Form 6251. • If the tax calculated on Form 6251 is higher than that calculated on your regular tax return, you have to pay the difference as AMT. It can result in you paying hundreds or thousands of dollars in additional taxes.
Congress created the alternative minimum tax (AMT) over three decades ago to prevent wealthy taxpayers from paying little or no tax due to various deductions, exemptions and other preferences in the tax code. The AMT requires people to recalculate their taxes using income that would otherwise be exempt from regular taxation.
The alternative minimum tax amplifies or expands the amount of your income that can be taxed. It adds items that were previously tax-free under the regular tax system, and disallows many of the deductions that were previously allowed. The alternative minimum tax increases income tax by disallowing deductions, exemptions and credits. In 1963, Congress noticed that a lot of people who had a high income also had a lot of deductions. Because of these deductions, these taxpayers paid a lot less tax than people on a lower income who had fewer deductions. Congress implemented the alternative minimum tax to make the tax system fairer. The alternative minimum tax is not just for high income tax payers. Many middle-income Americans have to pay alternative minimum tax and have their tax credits limited. Over the next few years, it is expected that more and more people will be paying this tax. Because the alternative minimum tax has not been marked for inflation, more people will be subject to it
The AMT is a parallel tax system that operates in the shadow of the regular tax, expanding the amount of income that is taxed by adding items that are tax-free under the regular tax system and disallowing many deductions. To figure out whether you owe any additional tax under the alternative minimum tax system, you need to fill out Form 6251. If the tax calculated on Form 6251 is higher than that calculated on your regular tax return, you have to pay the difference as AMT. It can result in you paying hundreds or thousands of dollars in additional taxes. Why are middle-class folks being hit with the AMT? In 1987, one year after the last major overhaul of the alternative minimum tax system, only one tenth of 1% of all returns had to pay the alternative minimum tax. Today, the alternative minimum tax is no longer just for high-income individuals. Many middle-income Americans are paying the AMT or having their tax credits limited by its hidden effects. The Treasury Department expects that
