The Minimum Tax Is Like Jumbo Shrimp - AMT Alternative Minimum Tax Explained

Sep 19, 2026

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Explains how the alternative minimum tax (AMT) operates within a complex tax code, why it was enacted in 1969, and how it has expanded to affect large numbers of taxpayers over time. Describes the mechanism: compute regular tax and AMT, then pay whichever is higher, and determine AMT based on taxable income plus certain adjustments compared with the exemption amounts. Includes AMT exemption thresholds and notes that software and the AMT Assistant tool can help determine AMT liability.

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AMT Overview

AMT Exemption Amounts

How AMT Liability Is Determined

TAXES | 2/25/2013 The Minimum Tax Is Like Jumbo Shrimp The alternative minimum tax—otherwise known as AMT—is one of many twisted features of our complex tax code.It maybe the most insidious and counterintuitive tax there is.AMT attempts to ensure that taxpayers who claim certain exclusions, deductions and credits pay a minimum amount of tax. The AMT was enacted in 1969 to catch high income taxpayers claiming large and obscure tax deductions. It was truly an alternative and minimum tax. No matter how much you wiped out your income with exotic tax perks like intangible drilling costs and other taxshelter sounding items, you paid a smaller alternative tax rate on virtually everything with no deductions. But as the years passed the AMT took on a life of its own. Today, the AMT has grown to cover almost everything. See 10 Things To Know About Taxes On Damages.And predicting how AMT works isn’t easy. You can’t eyeball your exposure.You compute regular tax and AMT and pay whichever is higher. It truly is an alternative tax system. A Congressional Research Service report made the dire prediction that 30 million taxpayers–one out of every five–will pay it for 2012: 1997: 605,000 taxpayers, about 1% of all taxpayers paid AMT. 2009: 3.8 million taxpayers, 2.7% of all taxpayers paid AMT. 2012: Over 30 million taxpayers will pay AMT or have AMT limits on tax credits (though the tax bill passed at New Year’s 2013 surely reduced that number to as low as 4 million. See How the New Tax Act Affects the Alternative Minimum Tax ). 2020: 58 million taxpayers will be hit by AMT. You may have to pay AMT if your taxable income plus certain adjustments is more than the AMT exemption amount.The 2012 AMT exemption amounts are: Single and Head of Household = $50,600; Married Filing Joint and Qualifying Widow(er) = $78,750; and Married Filing Separate = $39,375. Commercial return prep programs and IRS e-file software will determine if you owe AMT.If you do, it will figure the tax for you.If you file a paper return, you can use the AMT Assistant tool at[IRS.gov. Here](IRS.gov. Here) are other IRS resources: Alternative Minimum Tax (AMT) Assistant for Individuals Tax Topic 556 – Alternative Minimum Tax Form 6251 , Alternative Minimum Tax – Individuals Even if you’re good with numbers, it can be hard to see AMT coming. Example: You hire a contingent fee lawyer in connection with an investment and recover $500,000. $200,000 goes directly to your lawyer and you net $300,000. Is your income $300,000 or $500,000? Despite the direct payment to the lawyer, it’s $500,000. Plus, your legal fees are only a miscellaneous itemized deduction so face limitations. What’s worse, for AMT purposes the fees aren’t deductible at all. See AMT Problems For Attorney Fees Remain.And that’s just one of hundreds of examples of how the AMT can make your taxes spin out of control. Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he [can be reached at ](can be reached at Wood@WoodLLP.com. This discussion is not)[ Wood@WoodLLP.com](can be reached at Wood@WoodLLP.com. This discussion is not)[. This discussion is not](can be reached at Wood@WoodLLP.com. This discussion is not) intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

FAQs

What is the alternative minimum tax (AMT) and why was it created?

AMT is an alternative tax system designed to ensure taxpayers claiming certain exclusions, deductions, and credits pay a minimum amount of tax. It was enacted in 1969 to catch high-income taxpayers using large and obscure deductions.

How do you determine whether you have to pay AMT?

Add certain adjustments to taxable income, compare the result to the AMT exemption amount, and then compute both regular tax and AMT. The taxpayer pays whichever amount is higher.

What are the AMT exemption amounts mentioned for 2012?

For 2012: Single and Head of Household are $50,600; Married Filing Joint and Qualifying Widow(er) are $78,750; and Married Filing Separate is $39,375.

Sep 19, 2026

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