Alternative Minimum Tax (AMT)
A parallel tax system that ensures high-income taxpayers pay at least a minimum amount of tax. For 2025, the AMT exemption is $88,100 (single) and $137,000 (married filing jointly).
The Alternative Minimum Tax (AMT) is a separate tax calculation that runs parallel to the regular income tax. It was originally designed to ensure that wealthy taxpayers who use many deductions and preferences still pay a minimum amount of tax. You pay whichever is higher — your regular tax or your AMT.
AMT taxable income is calculated by starting with regular taxable income and adding back certain deductions and preferences, such as state and local tax deductions, certain interest income, and incentive stock option exercises. The AMT has two rates: 26% on income up to $239,100 and 28% on amounts above that. An exemption amount shelters a portion of AMT income — $88,100 for single filers and $137,000 for married filing jointly in 2025.
Since the Tax Cuts and Jobs Act of 2017 significantly increased the AMT exemption amounts and indexed them for inflation, far fewer taxpayers are affected by the AMT than before. However, it can still apply in situations involving large state tax deductions, incentive stock option exercises, or certain tax preference items. The AMT is calculated on Form 6251.
How it works
The AMT is a second, parallel tax calculation that runs alongside your regular income tax — you calculate both and pay whichever is higher. It exists to stop taxpayers who benefit from a large number of deductions and preference items from reducing their regular tax so far that they end up paying very little overall.
You start the AMT calculation from your regular taxable income and add back specific items the regular system lets you deduct — most notably state and local tax deductions, certain types of interest income, and the exercise of incentive stock options. An exemption then shelters part of that AMT income before the remaining amount is taxed at 26% up to $239,100 and 28% above that. You report and calculate this on Form 6251, filed alongside your regular return.
Since the Tax Cuts and Jobs Act sharply raised and indexed the AMT exemption amounts — $88,100 for single filers and $137,000 for married filing jointly in 2025 — far fewer taxpayers actually end up owing AMT than before that change. It still tends to catch people in specific situations: exercising a large batch of incentive stock options in one year, or itemizing a very large state and local tax deduction, since that add-back is one of the most common AMT triggers even after the regular SALT cap changes under OBBBA.
Example: AMT triggered by incentive stock options
An employee exercises incentive stock options with a large paper gain — the difference between the exercise price and the stock's fair market value — but does not sell the shares in the same year.
That paper gain is not taxable under the regular income tax, but it is added back as a preference item under the AMT calculation. If the resulting AMT exceeds their regular tax liability once the exemption is applied, they owe the AMT amount instead — even though they haven't sold any stock or received any cash.
Frequently asked questions
Do most taxpayers still have to worry about the AMT?
How do I know if I owe the AMT?
What is the AMT exemption amount for 2025?
Related Terms
Tax Liability
The total amount of tax you owe for the year before accounting for payments, withholding, and refundable credits. It is the bottom-line tax calculated on your return.
Taxable Income
The portion of your income that is actually subject to federal income tax, calculated by subtracting the standard or itemized deduction from your AGI.
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
Itemized Deduction
Specific expenses you can deduct instead of taking the standard deduction, including mortgage interest, state/local taxes (SALT cap: $40,000 for 2025+ under OBBBA, phased out for high earners), charitable donations, and medical expenses.