One outcome of the Tax Cuts and Jobs Act is that fewer taxpayers will be subject to the alternative minimum tax (AMT) in the future. New Era for the AMT The AMT Tales The AMT is a parallel tax system that eliminates many of the deductions and credits often used by taxpayers to reduce their tax bills under the normal rules. Consequently, more income may be taxable under the AMT. When the original law was passed in 1969, Congress wanted to ensure that taxpayers with high incomes pay at least a minimum amount of taxes. However, because lawmakers failed to index AMT exemption levels for inflation, the tax grew to affect millions of taxpayers over time. For a number of years, lawmakers used temporary “patches” to help prevent more middle-income households from being hit, but the AMT’s reach continued to expand. Two Ways to a Tax Bill The American Taxpayer Relief Act of 2012 permanently indexed the AMT exemption levels annually for inflation, but didn’t change the income threshold at which exemptions begin to phase out, which resulted in more people subject to the tax. The Tax Cuts and Jobs Act significantly increased the AMT exemption amounts and the income phaseout threshold for tax years 2018 through 2025. Taxpayers with incomes above the AMT exemption amounts ($85,700 for single filers and $133,300 for married couples filing jointly in 2024) must calculate their taxes under both sets of rules and pay the higher of the two. For 2024, taxpayers pay a tax rate of 26% on Alternative MinimumTaxable Income (AMTI) up to $232,600 (for single filers and married couples filing jointly). The tax rate increases to 28% on AMTI above this amount.
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