What's the Difference Between the Alternative Minimum Tax and Regular Income Tax?

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high earners pay at least a minimum amount of tax, even if they have many deductions under the regular system. You calculate your taxes under both systems and pay whichever amount is higher. The AMT disallows certain deductions that are allowed under regular tax rules, such as the state and local tax deduction and certain business deductions. The AMT has its own exemption amounts — $85,700 for single filers and $133,300 for married couples in 2024 — and the rates are 26% and 28% on income above those thresholds. Due to inflation adjustments and the 2017 tax law changes, the AMT now affects far fewer taxpayers than it once did, but it can still catch people with high incomes, large capital gains, or significant deductions from incentive stock options.