What Is the Alternative Minimum Tax (AMT) and Who Has to Pay It?

The Alternative Minimum Tax is a second, parallel way of calculating your federal income tax — one that adds back certain deductions and tax breaks before applying its own rates. You calculate your tax both ways and pay whichever amount is higher. For 2026, the AMT mostly affects people with income above roughly $500,000 to $1 million, or people with high state tax deductions or incentive stock options.

Most wage earners never see this tax show up on their return. But it’s worth understanding, because a bonus, a stock option exercise, or a big capital gain can push you into AMT territory even if your regular tax bill looks modest.

Why the AMT Exists

Congress created the AMT in 1969 after learning that a small number of very high-income households were using deductions and credits to reduce their regular tax bill to zero. The AMT was designed as a backstop: a simplified tax base with fewer deductions, so that people benefiting heavily from preferential tax treatment still paid something close to a minimum rate.

The catch is that the AMT exemption amount was never automatically indexed to inflation until 2013. For years, “bracket creep” pulled ordinary upper-middle-income families into AMT territory — not just the ultra-wealthy Congress originally targeted. Permanent annual indexing was enacted by the American Taxpayer Relief Act of 2012; the Tax Cuts and Jobs Act (TCJA) of 2017 then sharply raised the exemption and phase-out thresholds, which is why far fewer taxpayers owe AMT today than a decade ago.

How the Calculation Actually Works

Filing under AMT means recalculating your income using a different set of rules:

1. Start with your regular taxable income, then add back certain deductions and adjustments not allowed under AMT rules. Common add-backs include:
2. State and local tax (SALT) deductions
3. Certain miscellaneous itemized deductions
4. The “bargain element” from exercising incentive stock options (ISOs)
5. Depreciation differences for some business assets

6. Interest on certain private activity municipal bonds

7. Subtract the AMT exemption amount — a flat dollar figure that shields lower and middle incomes from the tax entirely. The exemption phases out once income passes a certain threshold, adding 26 or 28 cents of AMT for every dollar of exemption lost, depending on which AMT rate applies.

8. Apply AMT tax rates — just two brackets, 26% and 28%, instead of the seven regular income tax brackets.

9. Compare the two results. If your “tentative minimum tax” under AMT rules is higher than your regular tax liability, you pay the difference as AMT on top of your regular tax, reported on IRS Form 6251.

2025 AMT Exemption and Phase-Out Figures

The IRS adjusts AMT exemption amounts and phase-out thresholds annually for inflation. Here are the confirmed 2025 figures from IRS Revenue Procedure 2024-40:

The 26% AMT rate applies to alternative minimum taxable income (AMTI) up to $239,100 above the exemption ($119,550 if married filing separately); income above that is taxed at 28%.

A note on 2026: Congress’s 2025 tax law (the One Big Beautiful Bill Act) made the higher, TCJA-era AMT exemption amounts permanent, but it also reset the income level where the exemption starts phasing out back down to the 2018 levels — $500,000 for single filers and $1,000,000 for joint filers — for 2026 and beyond, and doubled the phase-out rate to 50 cents on the dollar. That means fewer taxpayers lose the exemption gradually — more lose it faster once they cross the threshold. The 2026 figures are already published, in IRS Revenue Procedure 2025-32: the exemption is $90,100 for single and head-of-household filers and $140,200 for married couples filing jointly, and it begins to phase out at $500,000 of AMTI for single filers and $1,000,000 for joint filers, at 50 cents per dollar. For 2026, the 26% rate applies to taxable excess up to $244,500 ($122,250 if married filing separately), with 28% above that.

Who Actually Gets Caught by AMT Now

Since the TCJA raised exemption amounts sharply starting in 2018, the number of AMT filers dropped from about 5.2 million in 2017 to roughly 200,000 in 2018, according to Tax Policy Center estimates. The taxpayers most likely to still owe AMT include:

• People who exercise and hold incentive stock options without selling in the same year
• Residents of high-tax states who previously claimed large SALT deductions (though the SALT deduction cap — raised to $40,400 for 2026 under the One Big Beautiful Bill Act, and phased down for high earners — limits how large this add-back can be)
• Households with several children and large personal exemption-equivalent deductions in pre-2018 law (less relevant now, but still checked)
• High earners with large long-term capital gains, since AMT still allows the same lower capital gains rates but changes how the surrounding income is taxed
• Anyone with significant private activity bond interest income

If your income is solidly in the mid-six-figures or below, and you don’t have ISOs or unusual deductions, you’re unlikely to owe AMT. If your income is climbing past $500,000-$600,000, or you’re about to exercise stock options, it’s worth running the numbers before year-end.

A Worked Example

Consider Maria, a single software engineer with $310,000 in regular taxable income for 2026. During the year, she exercised incentive stock options with a bargain element (the difference between the exercise price and market value) of $150,000, which she has not yet sold.

Under regular tax rules, that ISO bargain element isn’t taxed until she sells the shares — so her regular taxable income doesn’t include it.

Under AMT rules, though, that $150,000 gets added back to her income for AMT purposes:

• Regular taxable income: $310,000
• Add back ISO bargain element: +$150,000
• AMTI before exemption: $460,000
• Subtract the 2026 AMT exemption for a single filer: $90,100 — with no phase-out reduction, since her $460,000 of AMTI is below the $500,000 phase-out threshold
• Apply 26%/28% AMT rates to the remainder

If this calculation produces a tentative minimum tax higher than her regular tax bill, Maria pays the difference as AMT — even though she hasn’t sold a single share or received any extra cash. This is the classic AMT trap for tech and startup employees: a “paper gain” on stock options can trigger a real tax bill.

Maria may later be able to recover some of that AMT paid through the AMT credit (Form 8801) in future years, once she sells the stock and pays regular tax on the actual gain — but that credit can take years to fully use, and doesn’t guarantee a dollar-for-dollar refund.

How to Check Whether You Owe It

You generally need to complete IRS Form 6251 (or let tax software run the calculation) if any of these apply:

• You have income from ISO exercises, private activity bonds, or accelerated depreciation
• Your taxable income is above roughly $250,000-$300,000, especially if you claim large itemized deductions
• Your tax software or preparer flags “AMT” on a worksheet — most programs run this calculation automatically for every return

Most commercial tax software calculates AMT liability behind the scenes without you needing to do anything extra. If AMT applies, it shows up as an add-on line on Schedule 2 of Form 1040.

FAQ

Does the AMT replace my regular tax, or add to it?

It adds to it, in effect. You calculate your regular tax and your “tentative minimum tax” separately. If the AMT figure is higher, you pay your regular tax plus the difference between the two. You never pay less than your regular tax because of AMT.

Can I get back AMT I paid in a prior year?

Sometimes. Certain AMT add-backs — most notably the ISO bargain element — create a “minimum tax credit” you can carry forward and apply against regular tax in future years once the related income is taxed normally, using Form 8801. Other add-backs, like the SALT deduction difference, generally don’t generate a credit.

Is the AMT the same as the Net Investment Income Tax (NIIT) or the additional Medicare tax?

No. The AMT is a separate calculation from both the 3.8% Net Investment Income Tax and the 0.9% additional Medicare tax on high earners. A taxpayer can owe AMT, NIIT, additional Medicare tax, all three, or none, depending on their income sources and total income level. Each has its own thresholds and rules, detailed separately on IRS.gov.

Sources
– IRS.gov, Topic No. 556, Alternative Minimum Tax
– IRS.gov, Instructions for Form 6251 (Alternative Minimum Tax—Individuals)
– IRS.gov, Instructions for Form 8801 (Credit for Prior Year Minimum Tax)
– IRS Revenue Procedure 2024-40 (2025 inflation adjustments)
– IRS Revenue Procedure 2025-32 (2026 inflation adjustments, reflecting the One Big Beautiful Bill Act)
– IRS.gov Newsroom (annual inflation adjustment announcements)

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