Many unsuspecting taxpayers will find themselves paying more income tax this year because of the alternative minimum tax (AMT). This odd-sounding tax was originally enacted in 1969 to force "high income" taxpayers to pay a minimum amount of tax even if they used various types of tax shelters available at that time.
The tax was aimed at 155 families with more than $200,000 in income that paid little or no tax. In the past 40 years, the AMT has changed some, but it is now estimated that more than 3 million taxpayers are subject to the AMT.
What is the AMT?
The actual mechanics of the AMT can be complicated. In essence, after your regular tax is calculated, you do another tax calculation with adjustments to various income items, itemized deductions and personal exemption amounts and use the AMT tax rates of 26% to 28%. If the AMT calculation results in a higher tax, the difference is added to your regular income tax. That "add-on" is the alternative minimum tax.