Alternative Minimum Tax (AMT): What Does It Mean?

The Alternative Minimum Tax (AMT) is a parallel federal income tax system designed to ensure that high-income taxpayers cannot use deductions and credits to reduce their tax liability below a certain minimum. The AMT requires you to recalculate your taxes under a separate set of rules that disallow certain deductions (like state and local taxes) and add back certain preference items (like incentive stock option gains). If your AMT liability exceeds your regular tax, you pay the AMT amount instead. AMT exemption thresholds are adjusted annually for inflation.