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What is the Alternative Minimum Tax (AMT) and Do I Have to Pay It?

Updated: 1/18/2010
Article ID: 5069

Updated law protects many taxpayers, but not all

Legislation passed in early 2009 will protect at least 20 million taxpayers from paying higher taxes under the Alternative Minimum Tax when they file their 2009 returns.

However, at least four million taxpayers will still be hit with the tax.

Taxpayers who fall under the AMT pay an average of $2,000 in additional federal income taxes than they would without this alternative tax.

If you're concerned  that you might be one of them, read below.

So what is the AMT and why is it such a big deal?

The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn’t avoid paying income taxes. But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class as wages increased over the years. Now, unfortunately, it’s a major source of revenue for the Treasury and there’s no easy political solution. 

In recent years, including 2009, Congress passed legislation providing a temporary fix to keep the AMT from spreading to taxpayers who aren’t wealthy.

Unfortunately, there are no definitive guidelines for avoiding the AMT. It's determined by multiple factors.

As the name says, it’s an “alternative” tax. It’s calculated at the same time as your regular taxes. Whichever tax is greater, you must pay that. If the alternate method results in a higher tax, the difference between it and your standard tax bill is the AMT.  

TurboTax will calculate this as you’re doing your taxes and let you know if you owe this tax.

All 2009 TurboTax products have been updated to reflect changes in the law.

 

How do I know if I'll be hit with the AMT?

Most likely you won’t be affected.

But if you would like a heads up before your file, we can help.

TurboTax offers a quick and easy way to learn if you'll be affected by the AMT.

Use our free tax calculator, TaxCaster2009. It estimates what your 2009 taxes are likely to be, whether you will owe AMT and how much.

Who is most at risk for the AMT?

Taxpayers who have higher than average incomes, are married and have more than two children, own a home and live in a state with high incomes taxes, such as California, New York and Michigan.

The AMT affects such taxpayers because it won't let them count certain deductions that would otherwise lower their taxes, such as dependents or children, state income taxes, property taxes, interest on second mortgages or home-equity loans and high medical expenses.

We wish we could tell you the exact income level, or the amount of deductions, that cause the AMT to kick in. Unfortunately, we can't, because the AMT simply doesn't work that way.

How can I avoid it?

Most people affected by it can’t get around it. The AMT was designed to close loopholes - so it's very difficult to avoid.

For an in-depth understanding of the AMT, see Alternative Minimum Tax: Common Questions.


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