What is the alternative minimum tax (AMT)?
When you calculate your regular income tax, you can typically take a variety of deductions and credits for different expenses you had during the tax year, and these deductions and credits end up lowering your ultimate tax liability. However, you may still have to pay some minimum tax on these deductions and credits, and this additional tax is known as the alternative minimum tax, commonly referred to as the AMT. While not everyone falls into the group that has to pay this extra tax, more and more taxpayers have found themselves subject to the AMT over the last few years (this is largely due to the fact that the tax cuts made to the regular income tax rates have not been equally applied to the AMT rates).
When the AMT applies to you, you will calculate your regular income tax liability as always. However, afterwards, you will have to determine your liability under the AMT, and your ultimate tax burden is whichever amount of these two is higher. While there is no easy test to determine if the AMT applies to your particular situation, there are certain things which can indicate that the AMT may kick in. The only way to know if the AMT applies for certain, however, is to calculate your AMT using IRS Form 6251.