The alternative minimum tax (AMT) is a different but parallel method for calculating your taxes. AMT applies to higher-income earners and aims to close loopholes that allow them to reduce or eliminate tax payments.
If you’re a higher-income earned, the AMT system requires you to calculate your tax bill twice: once under the standard income tax system and another at the AMT.
AMT Exemption Amount for 2023
The IRS has increased the AMT to $81,300 for a single filer in 2023 from $75,900 in 2022. For a married couple filing jointly, the AMT has risen to $126,500 from $118,000 in 2022. The phase-out for married people filing jointly in 2023 begins at $1,1,56,300.
In other words, to pay for the AMT, you must earn more than the minimum in the chart below:
| Filing status |
2023 AMT exemption |
| Single or head of household | Up to $81,300 |
| Married, filing separately | Up to $51,525 |
| Married, filing jointly | Up to $126,500Â Â |
Retirement savers or investors may be subject to AMT if their adjusted gross income exceeds the exemption for their filing status. For instance, an individual with an incentive stock option and adjusted gross income above $81,300 must calculate their AMT income and pay the higher tax.
Who Pays the AMT?
You may be subject to the AMT if your income exceeds the above chart. However, reaching those levels doesn’t automatically result in AMT. You can complete IRS form 6251 to help you determine if you owe the AMT.
How to Calculate Alternative Minimum Tax
In 2023, the AMT is being levied at two rates: 26% and 28%. The IRS has set income levels to help you understand the rate you’re charged at your AMT. Check the chart below.
| Filing status | 2023 AMT tax rate income level |
| Single or head of household | $220,700 |
| Married, filing separately | $220,700 |
| Married, filing jointly | $206,100 |
The table above states that if you’re single and earn over $81,300 in 2023 but less than $220,700, your AMT rate is 26%. If you earn above $206,100, the rate will go up to 28%.
The AMT exemption (the amount of income you can exempt before triggering AMT) eventually phases out at 25 cents per dollar you earn once your income strikes the thresholds in the chart below.
| Filing status | 2023 AMT phaseout threshold |
| Single or head of household | $578,150 |
| Married, filing separately | $578,150 |
| Married, filing jointly | $1,156,300 |
In other words, you can’t exempt any income from the AMT if your income surpasses the above levels.
How the 2023 AMT Can Impact Eligibility for Tax Relief
Most items you could deduct from your standard taxes won’t apply to AMT. Under AMT:
- You won’t get personal exemptions or the standard deduction
- You can’t deduct state and local taxes
- Your medical expenses must exceed 7.5 of your gross income to get a deduction
- You can only deduct home equity and loan interest if you use the money solely to pay home improvements
- You can’t deduct real estate property taxes under the AMT
This begs the question:
How Can You Reduce What You Owe Under AMT?
When AMT hits you hard, you can draft strategies to reduce your tax liability. You can:
- Defer your income to next year
- Contribute to your 401(k) or 403(b)Leverage solo 401(k)
- Create tax-free income with a Roth IRA
- Give to charity
- Move deductions to a different schedule if you have a business, rentals, or other income that fits this category
