Alternative Minimum Tax (AMT) Rules and Exclusions for 2025

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The alternative minimum tax (AMT) is a separate way to calculate taxes that makes sure high-income earners pay at least a minimum amount, even if they claim many deductions or credits. In 2025, the AMT exemption is $88,100 for single filers and $137,000 for married couples filing jointly. These amounts start to phase out if income is over $626,350 for singles or $1,252,700 for joint filers. A financial advisor can help you figure out if the AMT affects you and plan for it.

The AMT operates as a separate tax framework aimed at limiting the use of deductions and credits by high-income taxpayers to significantly lower their tax obligations. It was introduced in 1969 in response to concerns that some wealthy individuals were paying little to no federal income tax.

Unlike the regular tax system, which allows various deductions and exemptions, AMT recalculates taxable income by adding back certain tax preferences, such as state and local tax (SALT) deductions and particular business net operating losses.

AMT applies only if the recalculated tax liability exceeds what a taxpayer would owe under the standard tax system. If so, the taxpayer must pay the higher amount. This system primarily affects individuals with high incomes, large capital gains or substantial deductions.

To adjust for inflation, AMT includes an exemption amount, which phases out at higher income levels. While fewer taxpayers are subject to AMT today due to automatic inflation adjustments, it still impacts those with complex financial situations.

AMT uses a separate set of tax brackets from the regular income tax system. Instead of progressive marginal rates that increase with income, AMT applies only two tax rates: 26% and 28%. The first $239,100 of taxable AMT income ($119,550 for married couples filing separately) is taxed at 26%, while any amount above either of those amounts is taxed at 28%.

This separate tax system also includes exemption amounts, which reduce the portion of income subject to the tax. For 2025, the exemption is $137,000 for married couples filing jointly and $88,100 for single filers. However, the exemption begins to decrease once a taxpayer’s alternative minimum taxable income (AMTI) surpasses a specific threshold, which is adjusted for inflation annually. The exemption is completely eliminated once AMTI hits a secondary threshold, which is also subject to annual inflation adjustments.

Since AMT calculations remove certain deductions allowed under the standard tax system, taxpayers must determine whether their adjusted income pushes them into this separate tax structure.

The alternative minimum tax exemption reduces the portion of income subject to AMT, but this benefit phases out at higher income levels. For 2025, the exemption begins to decrease once a taxpayer’s AMTI surpasses a specific threshold: $1,252,700 for married couples filing jointly and $626,350 for single filers. The phaseout mechanism reduces the exemption by 25 cents for every dollar of AMTI above these thresholds.

If AMTI reaches the complete phaseout threshold-$1,800,700 for joint filers and $978,750 for single taxpayers-the exemption is eliminated entirely, meaning all AMTI is subject to AMT rates. This phaseout structure significantly increases AMT liability for high earners, as it effectively subjects more income to the 26% and 28% AMT rates, making tax planning an important consideration for those near or above the phaseout range.

For example, a single filer with an AMTI of $1 million exceeds the $626,350 phaseout threshold by $373,650. The exemption is reduced by 25% of that amount, or $93,412.50. Since the full exemption for single filers is $88,100, this reduction eliminates the exemption entirely, meaning the taxpayer’s entire AMTI is subject to AMT rates.

Now imagine a second single filer with an AMTI of $800,000. Since their AMTI exceeds the $626,350 threshold by $173,650, their exemption is reduced by 25% of that amount, or $43,412.50, leaving a final exemption of $44,687.50 ($88,100 – $43,412.50). While some exemption remains, a significant portion of income is still subject to AMT rates, demonstrating how the phaseout gradually increases taxable AMTI.

AMT liability is determined by applying AMT tax rates to AMTI after adjusting for the exemption. Once the exemption is reduced or eliminated based on income, the remaining taxable AMTI is subject to either 26% or 28% tax rates.

For the hypothetical single filer with $1 million in AMTI, the exemption is completely phased out. The first $239,100 of taxable AMTI is taxed at 26%, resulting in $62,166 in tax. The remaining $760,900 is taxed at 28%, adding $213,052 in tax. The total tentative AMT is $275,218. If this amount exceeds the taxpayer’s regular income tax, the difference must be paid as AMT.

For the single filer with $800,000 in AMTI, the reduced exemption of $44,687.50 is subtracted, leaving a taxable AMTI of $755,312.50. The first $239,100 is taxed at 26% ($62,166), and the remaining $516,212.50 is taxed at 28% ($144,539.50), totaling $206,705.50 in tentative AMT. Again, comparing this amount to the regular tax liability determines whether additional AMT applies.

The alternative minimum tax (AMT) is a separate tax rule that some high-income earners must follow. It takes away some deductions and uses different tax rates. Fewer people owe AMT now because of inflation adjustments, but it can still affect those with large deductions, capital gains, or stock options. If your income is high, your AMT exemption may shrink, which can increase your taxes.

If you want to lower your tax liability, a financial advisor can work with you to optimize your portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

SmartAsset’s tax return calculator with updated tax brackets and rates can help you estimate how much your next tax refund or balance could be.

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