Alternative Minimum Tax

The alternative minimum tax (AMT) is a supplemental income tax imposed by the United States federal government required in addition to baseline income tax for certain individuals, corporations, estates, and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax. AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (also known as exemption). This exemption is substantially higher than the exemption from regular income tax.

Regular taxable income is adjusted for certain items computed differently for AMT, such as depreciation and medical expenses. No deduction is allowed for state taxes or miscellaneous itemized deductions in computing AMT income. Taxpayers with incomes above the exemption whose regular Federal income tax is below the amount of AMT must pay the higher AMT amount.

A predecessor "minimum tax", enacted in 1969, imposed an additional tax on certain tax benefits for certain taxpayers. The present AMT was enacted in 1982 and limits tax benefits from a variety of deductions. On January 2, 2013, President Barack Obama signed the American Taxpayer Relief Act of 2012, which indexes to inflation the income thresholds for being subject to the tax.

Each year a taxpayer must re-calculate and then pay the greater of an alternative minimum tax (AMT) or regular tax. , effectively for high income earners who mitigate their tax position from the day-to-day income tax, an end of year consolidation of all taxable income is requested and submitted, this is then paid in arrears (from the normal payroll income tax) less any allowable deductions. For many taxpayers, the effective marginal tax rates are 0% (exemption), 26% (low bracket), 32.5% (low bracket with exemption phase out), 35% (high bracket with exemption phase out), and 28% (high bracket) with increasing taxable income as modified for AMT. As with regular Federal income tax, rates and exemptions vary by filing status. The lower rate and the exemption are phased out above certain income levels at 25% of AMT income. A lower rate applies on capital gains (and qualifying dividends).

*For income within the exemption phase-out, marginal tax rates are effectively multiplied by 1.25, which changes 20% to 25%, changes 26% to 32.5%, and changes 28% to 35%.

...
Wikipedia