The Alternative Minimum Tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. The AMT is designed to ensure that certain high-income taxpayers pay at least a minimum amount of income tax, and it operates in the shadow of the regular tax system, expanding the amount of income that is taxed by adding items that are not normally taxed and disallowing many deductions under the regular tax system.

The AMT is calculated using a different set of rules than the regular tax system, and certain types of income and deductions that may be excluded or deducted when figuring out normal taxes may need to be added back into taxable income. For example, AMT calculations require taxpayers to include income from an incentive stock option that was exercised and any refunds received for state and local income taxes.

The AMT is calculated by taking the taxpayers regular income and adding on disallowed credits and deductions such as the bargain element from incentive stock options, state and local tax deduction, foreign tax credits, and passive activity losses. The AMT is imposed if the tentative minimum tax exceeds the regular tax, and the tentative minimum tax is the AMT rate of tax times alternative minimum taxable income (AMTI) less the AMT foreign tax credit.

The AMT is a tax of roughly 28% on adjusted gross income over $186,300 plus 26% of amounts less than $186,300 minus an exemption depending on filing status after adding back in most deductions. Taxpayers must perform all of the paperwork for a regular tax return and then all of the paperwork for Form 6251.

In summary, the AMT is a separate tax system that requires some taxpayers to calculate their tax liability twice and pay whichever amount is highest. It is designed to ensure that certain high-income taxpayers pay at least a minimum amount of income tax.