What Is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) is a parallel federal tax system that exists alongside the regular income tax, designed to ensure that high earners can't reduce their tax bill to zero (or near zero) through large deductions. You calculate your taxes under both systems and pay whichever is higher. The AMT disallows certain deductions that are permitted under the regular tax — including the state and local tax deduction, personal exemptions, and the standard deduction — and applies flat rates of 26% and 28% to income above AMT exemption amounts. For 2024, the exemption is $85,700 for single filers and $133,300 for married couples, with phase-outs beginning at higher income levels. The AMT most commonly affects people with high incomes, large capital gains, significant state and local tax deductions (which are fully added back under the AMT), or employees who exercised incentive stock options during the year.