Will You Owe the Alternative Minimum Tax?

Established in 1969, the alternative minimum tax (AMT) was originally intended to prevent wealthy Americans from shortchanging the federal government at tax time. Generally, taxpayers can take advantage of credits and deductions to reduce their tax liability and lower their taxable income. The AMT comes into play once your income reaches a certain limit. While the tax was permanently indexed for inflation in 2013, millions of Americans may still find themselves getting hit with the AMT this year. If you’re worried you may have to pay, here’s what you need to know.

A financial advisor can help you determine how the AMT could impact your finances and suggest ways to reduce taxes through deductions, retirement contributions and income planning.

How the Alternative Minimum Tax Works

The AMT is a parallel tax system that operates separately from the regular tax laws. The AMT system expands the amount of income that’s subject to tax by excluding certain deductions and exemptions you would normally be able to claim.

While you can still claim deductions for things like mortgage-interest and charitable donations, you won’t be able to deduct things like state and local taxes, property taxes or child tax credits.

AMT Exemption Rules

Generally, you’ll only be subject to the AMT if your taxable income is more than the AMT exemption limit allowed for your filing status. According to the IRS, ​the AMT applies a two-tiered tax rate system: 26% and 28%. For the 2025 tax year, the AMT exemption amounts are $88,100 for single filers and $137,000 for married couples filing jointly. These exemptions begin to phase out at income levels of $626,350 for single filers and $1,252,700 for joint filers.

Once you’ve deducted the value of the exemption, the remaining taxable income is subject to the 26% or 28% AMT rates. The good news is you may be able to qualify for a minimum tax credit, which allows you to claim a credit in future years for the additional tax you paid under the AMT guidelines.

Potential AMT Triggers

There are a number of factors that may influence whether or not you’ll be on the hook for the AMT, including your income, filing status, the types of deductions you claim and the number of dependents you have. For example, married couples who earn above average incomes tend to be more at risk, especially if they own a home and have multiple dependents.

You’re also more likely to pay the AMT if you live in a state that has a high income tax rate or if you normally claim a deduction for medical expenses. Other things that could potentially trigger the AMT include high deductions for unreimbursed business expenses, substantial gains from investments, exercised stock options or lots of smaller write-offs that significantly reduce your taxable income.

​The AMT primarily affects higher-income taxpayers, particularly those with significant deductions or certain income types. While low to middle-income individuals are generally less likely to encounter the AMT, factors such as exercising incentive stock options or residing in high-tax states can also trigger AMT liability for those with incomes below this threshold.

General Tax Planning Tips for AMT

While you won’t be able to do anything about your Alternative Minimum Tax liability for this tax filing season there are some things you can do to plan ahead for next year. Generally, you want to look for opportunities to reduce your year-end adjusted gross income to keep your tax liability down. The lower your income, the bigger your AMT exemption will be which could keep you from having to pay the tax.

One way to manage AMT exposure is through income timing. Since the AMT exemption decreases as income rises, spreading out income over multiple years can help keep taxable income below key thresholds. This is especially relevant for those with stock options, large bonuses, or business income that can be deferred.

Another strategy is adjusting deductions. Certain deductions, such as state and local taxes, medical expenses and unreimbursed business expenses, are not allowed under the AMT system. Taxpayers who typically claim these deductions may want to explore alternative strategies, such as shifting charitable contributions to high-income years or reviewing their tax withholding to better estimate their AMT impact.

Investors should also be mindful of capital gains and stock options. Large investment gains, especially from exercised incentive stock options, can push taxpayers into AMT territory. Spreading stock sales across multiple years or carefully planning ISO exercises may help avoid a sudden increase in taxable income that triggers the AMT.

For those who are consistently affected by the AMT, using tax-advantaged accounts can be a useful strategy. Contributing to traditional IRAs, employer-sponsored retirement plans and health savings accounts can help lower adjusted gross income, which in turn reduces AMT exposure. The more proactive you are now, the better off you’ll be when tax season rolls around again.

Bottom Line

The AMT limits deductions for higher-income taxpayers, often resulting in a higher tax bill. It applies when income exceeds a certain level, removing some tax breaks like state and local tax deductions. Factors such as high income, large deductions and stock options can trigger the AMT. Lower-income taxpayers are usually not affected, but those with higher earnings should check their tax liability. Contributing to retirement accounts and managing deductions can help reduce AMT impact.

Tips for Tax Planning

• Since AMT rules can be complex and tax laws change over time, consulting a financial advisor who specializes in tax planning can help lower your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an extimate.

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