Alternative minimum tax: Is it only for the wealthy?

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High earners, meet your minimum.

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Have you heard of alternative minimum tax (AMT)? You may have seen a reference to it on your Form 1040. But do we all have to calculate it and pay it, or is it only for “rich people”? What’s the purpose of the AMT? How much money do you have to make before you have to calculate a minimum tax? And what red flags might cause the IRS to make sure you’re paying enough?

Here’s the good news: If you use a tax preparer or tax software to help you file, the preliminary alternative minimum tax calculations will be done automatically or behind the scenes. But it’s a good idea to understand the concepts and know whether the tax could apply to you.

According to the IRS, certain tax benefits that are allowed under tax law can reduce a taxpayer’s tax amount by a significant degree. Alternative minimum tax (AMT) is a special tax calculation that certain high-income taxpayers must use to make sure that they are paying at least a minimum amount of tax.

According to the Tax Foundation, “Congress enacted the AMT in 1969 following testimony by the Secretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid zero federal income tax on their 1967 tax returns.” The Tax Reform Act of 1969 began use of an “add-on” minimum income tax, which was changed to AMT with the Revenue Act of 1978. The AMT income thresholds are updated each year to account for inflation.

The worksheet that lets certain income levels avoid the AMT is included in the instructions to Form 1040 Schedule 2. This worksheet first calculates a tentative AMT taxable income. Typically, taxable income on Form 1040 is calculated as adjusted gross income (AGI) minus standard deductions or Schedule A itemized deductions, minus the QBI (qualified business income) deduction.

For AMT purposes, taxable income is calculated as AGI minus the QBI deduction (if you took the standard deduction) or taxable income with the state tax/property tax deduction added back (if you used Schedule A to calculate your deduction). You get to subtract from either of these numbers any tax refunds you claimed on Schedule 1. This new AMT taxable income number is compared to the following amounts for 2025 (and 2026):

If your AMT taxable income is lower than these amounts, you are not required to calculate AMT.

For the 2025 tax year, if your AMT taxable income is higher than those amounts, but lower than the following amounts, your exemption will be reduced by 25 cents for every dollar over the threshold. Under the One Big Beautiful Bill Act (OBBBA), for the 2026 tax year, the exemption amount will revert to 2018 levels and the phaseout rate will double (from 25 cents to 50 cents for every dollar earned over the threshold).

AMT taxable incomes over these amounts must complete Form 6251 and calculate an AMT.

Example 1: Tammy and John are married and they file jointly. In 2025, their AGI was $150,000 and they took the standard deduction. They had no QBI deduction nor tax refunds. Their AMT taxable income on the worksheet would equal $150,000, which is higher than the $137,000 listed on the table. Now they must compare 26% of the “taxable excess” ($150,000 – $137,000 = $13,000; $13,000 x 0.26 = $3,380) to the total amount of taxes that were calculated on their Form 1040. If their taxes were higher than $3,380, they do not need to calculate the AMT.

Example 2: Trevor is single. In 2025, his AGI was $55,000. He took the standard deduction and had no QBI deduction nor tax refunds. His AMT taxable income on the worksheet would equal $55,000, which is lower than the $88,100 on the table. He does not need to complete the worksheet nor calculate AMT.

Example 3: Darlene is head of household in 2025 and her taxable income was $700,000. She itemized deductions, and her state/local taxes and property taxes on Schedule A were at the max of $40,000. Her AMT taxable income is $740,000 ($700,000 + $40,000) and over the $626,350 threshold. She must complete the Form 6251 to calculate her AMT.

Darlene may or may not owe additional taxes due to the AMT calculation—that depends on her net effective tax rate (according to standard tax tables) versus the amount owed under the AMT (see below).

The IRS Schedule 2 instructions (see pages 95 and 96) list several red flags that automatically require the completion of Form 6251 to calculate AMT. If you don’t understand any of the terms below, they may not apply to you. And if they do apply to you, it’s likely that you have a more complicated tax return and have hired a tax preparer who will help you through the AMT calculation.

Form 6251 is used to calculate AMT. You begin with taxable income from Form 1040; then items are added back to make it higher. The first item added back is your state and local taxes and property taxes from Schedule A. Many of the “red flags” items listed above are then added back or calculated in a different way for the AMT. Your AMT taxable income is compared to the income levels listed above, calculating a taxable excess. For 2025, a 26% tax rate is applied to the first $239,100 ($119,550 if married and filing separately) of the taxable excess; a 28% tax rate is applied to any additional taxable excess.

For the 2026 tax year, the 28% tax rate applies to taxable excess above $244,500 ($122,250 if married filing separately).

Even if you don’t have any red-flag triggers on your tax return, you may need to calculate your alternative minimum tax just because of your income level. It may seem unfair to have to pay more taxes than are calculated by your tax forms, but the goal of the AMT is to make sure people don’t use any potential “loopholes” to avoid paying. In order to get the services that taxes provide, we must all pay our fair share.