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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Erik Isakson/Getty Images November 06, 2021 AJ Dellinger is a contributing writer for Bankrate. AJ writes about auto loans and real estate. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. What is the alternative minimum tax AMT
The alternative minimum tax, or AMT, is a different, yet parallel, method to calculate a taxpayer’s bill. It applies to people whose income exceeds a certain level and is intended to close the loopholes that allow them to reduce or eliminate their tax payments. It’s adjusted each year for inflation. How the AMT works
The AMT has its own set of rates (26 percent and 28 percent) and requires a separate calculation from regular federal income tax. Basically, it’s the difference between your regular tax bill, based on ordinary income tax rates, and your AMT bill, determined by completing . When there’s a difference, you may have to pay the AMT amount in addition to your regular tax. The AMT increases the amount of income that is taxed for high earners. It adds items that are not taxed on the and rejects or reduces many common tax breaks used by individual taxpayers to . AMT exemption amounts for 2020-2021
To be required to pay the AMT, you must have earned more than the minimum level in the chart below. Filing status 2o21 AMT exemption 2o20 AMT exemption Single or head of household Up to $73,600 Up to $72,900 Married, filing separately Up to $57,300 Up to $56,700 Married, filing jointly Up to $114,600 Up to $113,400 Who has to pay the AMT
Anyone who exceeds the income levels in the above chart may be subject to the AMT. However, reaching those levels does not automatically trigger the AMT. You can complete IRS Form 6251 by hand, use tax software programs or hire a professional tax preparer to determine if you owe the AMT and, if so, calculate the amount you owe. The has set income levels to determine which rate you’re charged for your AMT. If your income is below the stated level in the chart below, you’re taxed at 26 percent. If your income is over the stated level, you’re taxed at a rate of 28 percent on the excess income. Filing status 2021 AMT tax rate income level 2020 AMT tax rate income level Single or head of household $199,900 $197,900 Married, filing separately $99,950 $98,950 Married, filing jointly $199,900 $197,900 This means that for a single person who earned more than $73,600 in 2021, but less than $199,900, the AMT rate is 26 percent. If that person earned more than $199,900, the AMT tax rate goes up to 28 percent. The AMT exemption — the amount of income taxpayers can exempt before triggering AMT — eventually phases out at 25 cents per dollar earned once income has reached the thresholds in the chart below. In other words, you can no longer exempt any income from the AMT if your income surpasses these levels. Filing status 2021 AMT phaseout threshold 2020 AMT phaseout threshold Single or head of household $523,600 $518,400 Married, filing separately $523,600 $518,400 Married, filing jointly $1,047,200 $1,036,800 How the AMT can impact your eligibility for tax breaks
With the AMT, many of the items you could deduct for your standard taxes no longer apply. Under the AMT: You do not receive the or personal exemptions. You cannot deduct state and local taxes. must exceed 7.5 percent of your gross income to be deducted. is restricted. It can only be deducted if the money is used solely to pay for home improvements. Real estate are disallowed as deductions under the AMT. Some tax credits that reduce your regular tax liability do not reduce what you owe under the AMT. Once you add back these disallowed items and run the numbers, you might be subject to a bigger IRS bill if your taxable income exceeds the annual AMT exemption amount for your filing status. Additional tax breaks not allowed under the AMT that affect predominantly high-income people are: Incentive stock options. Intangible drilling costs. Tax-exempt interest from certain private activity bonds. Depletion and accelerated depreciation on certain leased personal or real property. Determining your financial liability as a result of the AMT can be complicated. or a tax professional may be the best way to determine what you owe. Once you complete this year’s tax return, seek the guidance of an accountant or tax professional to find ways to potentially reduce your tax liability going forward. SHARE: AJ Dellinger is a contributing writer for Bankrate. AJ writes about auto loans and real estate. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Related Articles