Instead of eliminating the tax preferences that enabled these taxpayers to reduce their taxable income, Congress created a minimum tax. Treasury Secretary Joseph Barr testified that in 1966, 155 high-income people paid zero income tax. The AMT was enacted in 1969 to keep wealthy taxpayers from using what was viewed as too many tax preferences. Why Was the Alternative Minimum Tax (AMT) Created? The TCJA increased the AMT’s exemption and exemption phaseout through 2025, greatly reducing the number of taxpayers subject to the AMT, to an estimated 200,000. In tax year 2017, the last year before the Tax Cuts and Jobs Act (TCJA) took effect, approximately 5 million taxpayers had to pay under the AMT. Taxpayers then pay either their ordinary individual income tax liability or their AMT liability, whichever is greater. After addressing foreign tax provisions, taxpayers calculate their tentative tax amount under the AMT. However, exemptions phase out at 25 cents per dollar once AMTI hits $518,400 for single filers and $1,036,800 for married taxpayers filing jointly in 2020.Īfter calculating their AMTI and applying the exemption, taxpayers (single and married filing status) are taxed at a rate of 26 percent on AMTI below $197,900 and 28 percent on AMTI above $197,700 (tax brackets for tax year 2020). Next, the AMT allows an exemption of $72,900 for singles and $113,400 for married couples filing jointly to be excluded from the tax (for tax year 2020). Taxpayers add certain deductions back into their income to figure out their Alternative Minimum Taxable Income (AMTI). The AMT eliminates or reduces the value of tax preferences taken under the ordinary system. How Is the Alternative Minimum Tax (AMT) Calculated?
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