What is the AMT (Alternative Minimum Tax)?

The Alternative Minimum Tax (AMT) is a parallel US tax system that ensures high-income taxpayers with large deductions or preference items pay at least a minimum amount of federal tax. You calculate both your regular tax and your AMT, and owe the higher of the two. The 2026 AMT exemption is $88,100 for single filers and $137,000 for married filing jointly.

Detailed definition

Congress created the AMT in 1969 after Treasury Secretary Joseph Barr reported that 155 wealthy taxpayers had paid zero federal income tax in 1967 by stacking otherwise legitimate deductions and exclusions. The original Minimum Tax was a 10 percent add-on. It morphed into the modern AMT in 1982. Because the AMT was originally indexed by Congress rather than automatically by CPI, it crept down into the middle class through the 1990s and 2000s, hitting 4 to 5 million households before the 2017 Tax Cuts and Jobs Act (TCJA).

TCJA reformed the AMT in three ways. It roughly quadrupled the exemption (from $54,300 to $70,300 for single filers in 2017, indexed thereafter). It raised the income level at which the exemption begins to phase out by an order of magnitude (from $120,700 to $500,000 single in 2018). And by capping the SALT deduction at $10,000 in the regular tax system, it removed one of the largest items that had previously triggered AMT for upper-middle-class filers in high-tax states. The number of AMT payers fell from approximately 5 million pre-TCJA to under 200,000 post-TCJA. The 2025 One Big Beautiful Bill Act extended TCJA's individual provisions, so the higher AMT exemption continues through 2026.

The mechanism is parallel calculation. Start with regular taxable income. Add back AMT preference items (SALT above the cap, ISO exercise spread, depreciation differences, private-activity-bond interest, and a short list of other adjustments). Subtract the AMT exemption. Apply the 26 / 28 percent rates. The result is your tentative AMT. Compare it to your regular tax. If tentative AMT is higher, you owe the difference as AMT on top of regular tax. The combined liability is reported on Form 6251.

How AMT is calculated

AMTI            = Regular taxable income + AMT preference add-backs - AMT-specific deductions
AMTI after exempt = AMTI - AMT exemption (with phase-out above thresholds)
Tentative AMT    = (AMTI after exempt up to $239,100) x 26%
                  + (AMTI after exempt above $239,100) x 28%
                  - Foreign tax credit (recomputed for AMT)
AMT owed        = max(0, Tentative AMT - Regular tax)

Regular taxable income: from Form 1040 after itemized or standard deduction.
AMT preference add-backs: ISO exercise spread (FMV - strike on exercise date), depreciation differences, private-activity-bond interest, SALT deduction above the cap.
AMT exemption: $88,100 single / $137,000 MFJ 2026, phased out 25 cents per dollar above $626,350 / $1,252,700 AMTI.
Rates: 26 percent up to $239,100 AMTI (above exemption); 28 percent on the excess.

Worked example: ISO exercise in 2026

Suppose Daniel is a single Bay Area software engineer earning $250,000 W-2 salary in 2026. In November 2026 he exercises 20,000 vested ISOs at a $2 strike when the fair market value is $32 per share. He holds the shares (does not sell), planning a qualified disposition.

Regular taxable income: $250,000 W-2 - $15,000 standard deduction = $235,000.
Regular tax (2026 single brackets): approximately $50,000 (effective rate around 21 percent).
ISO spread for AMT: 20,000 shares x ($32 - $2) = $600,000 added back as AMT preference.
AMTI: $235,000 + $600,000 = $835,000.
AMT exemption: phase-out starts at $626,350; reduction is ($835,000 - $626,350) x 25% = $52,162. Exemption = $88,100 - $52,162 = $35,938.
AMTI after exemption: $835,000 - $35,938 = $799,062.
Tentative AMT: $239,100 x 26% + ($799,062 - $239,100) x 28% = $62,166 + $156,789 = $218,955.
AMT owed on top of regular tax: $218,955 - $50,000 = $168,955.

Result: Daniel owes an additional $168,955 in AMT on top of $50,000 regular tax in 2026 (combined: $218,955), all triggered by holding 20,000 ISO shares post-exercise. The entire $168,955 becomes a Minimum Tax Credit that he can claim in future years when his regular tax exceeds his tentative AMT. If he had sold the shares in the same calendar year (a disqualifying disposition), the spread would have been taxed as W-2 wages instead of triggering AMT.

Common AMT triggers

Trigger	Mechanism	Who it hits
ISO exercise + hold	Spread (FMV - strike) added back to AMTI as preference item	Tech employees pre-IPO or with appreciated grants
Large SALT deduction	SALT above $10,000 cap added back to AMTI	High earners in CA, NY, NJ, IL pre-TCJA; minimal post-TCJA
Private activity bond interest	Tax-exempt for regular tax; AMT preference item	High-net-worth muni investors
Accelerated depreciation	Different depreciation schedule for AMT vs regular	Real estate investors, small business owners
Large LTCG / qualified dividends	Doesn't trigger AMT directly but uses up the AMT exemption faster	Concentrated wealth, large stock sales
Stock options at non-public companies	FMV is the 409A valuation; AMT due even without liquidity	Startup employees pre-IPO

Common mistakes

Exercising ISOs without modeling AMT: a $600K ISO spread can mean $150K+ of AMT due in April, even though no shares were sold to generate cash. Run Form 6251 math before exercising.
Forgetting the Minimum Tax Credit: AMT paid on ISO exercises is recoverable as MTC over future years. File Form 8801 every year until the credit is used up.
Mixing ISO exercise with a disqualifying disposition by accident: selling shares before holding 1 year from exercise and 2 years from grant turns the ISO into ordinary income (W-2), losing AMT-credit recovery and qualified-disposition LTCG treatment.
Ignoring AMT for capital gains spike: a large LTCG year does not directly trigger AMT but uses up the exemption phase-out, potentially causing AMT on other preference items in the same year.
Missing AMT in state tax calculations: some states (CA, IA, MN, others) have their own state AMT with different rules. Federal-only modeling misses state AMT on top.
Confusing AMT with NIIT: the 3.8 percent Net Investment Income Tax is separate from AMT and applies to high-income investment income regardless of AMT status.

Related calculators on 3Tej

Plug your own numbers into one of these free calculators to model AMT exposure:

US AMT Calculator US AMT Calculator (alt)US Salary Calculator Capital Gains Calculator

Frequently asked questions

What is the AMT exemption for 2026?

For 2026, the AMT exemption is $88,100 for single filers, $137,000 for married filing jointly, and $68,500 for married filing separately. The exemption phases out at 25 cents per dollar of AMTI above $626,350 (single) and $1,252,700 (MFJ), and disappears entirely above $978,750 (single) and $1,800,700 (MFJ).

What triggers AMT?

The most common triggers in 2026 are: incentive stock option (ISO) exercises with the spread (bargain element) added back to AMTI, large state and local tax (SALT) deductions added back, large miscellaneous itemized deductions added back, depreciation differences for self-employed and real estate investors, and tax-exempt interest from private activity bonds. ISO exercises are by far the most common high-impact trigger for tech employees.

What are the AMT tax rates for 2026?

Two rates: 26 percent on the first $239,100 of AMT taxable income (after exemption) and 28 percent above $239,100. Long-term capital gains and qualified dividends inside AMT income retain their preferential 0 / 15 / 20 percent rates.

How does the AMT credit work?

When you pay AMT because of timing differences (most notably ISO exercises), the excess AMT becomes a Minimum Tax Credit (MTC) that carries forward indefinitely. You can use the credit in future years when your regular tax exceeds your tentative AMT. This effectively turns the AMT bill on an ISO exercise into a pre-payment of future regular tax. File Form 8801 to track and claim the credit.

AMT vs regular tax, which do I pay?

You always pay the higher of the two. You compute regular taxable income and regular tax using the standard rules, then compute AMTI by starting with regular taxable income and adding back AMT preference items, subtracting the AMT exemption, and applying the 26/28 percent rates. If AMT exceeds regular tax, you owe the difference. Most middle-class filers pay regular tax; AMT typically hits high earners with ISO exercises, large LTCG, or large SALT deductions in high-tax states.

Did the TCJA eliminate AMT?

No, but it dramatically reduced who pays it. The 2017 Tax Cuts and Jobs Act raised the AMT exemption and its phase-out thresholds substantially, while also capping the SALT deduction at $10,000, which removed one of the largest AMT add-backs for most filers. Pre-TCJA, roughly 5 million households paid AMT; post-TCJA, about 200,000. TCJA's individual provisions are scheduled to sunset after 2025, but the One Big Beautiful Bill Act (2025) extended them, so the higher AMT exemption continues through 2026.

Sources and further reading

IRS - Form 6251 Alternative Minimum Tax (Individuals)
IRS - Form 8801 Credit for Prior Year Minimum Tax
IRS - Form 6251 Instructions, 2026 exemption + phase-out thresholds
Tax Policy Center - Who pays the AMT
Internal Revenue Code Section 55 (the AMT statute) and Section 56 (preference items).

Last updated 2026-05-28.