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For US federal tax, whether a taxpayer is subject to AMT is determined by a complicated way in Instructions for Form 1040, Line 45, which involves an incomprehensible "worksheet to see if you should fill in form 6251".

By simplification and approximation, is there a rule of thumb for an estimate of a salary value of a taxpayer, so that a salary above the value might cause the taxpayer to pay AMT with a big possibility, and a salary below the value might not with a big possibility?

Why do the following two sources seem to differ greatly in estimates of the boundary salary value:

Thanks.

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  • By anecdata, around 2001 I paid +17 under AMT on an AGI of about 130,000 because the computer just checked it. – user662852 Jan 12 '17 at 14:18
  • Also, please clarify the question: is the rule of thumb to be based on "salary" as stated or "income" (perhaps even "qualities of income") as is the actual rule. I did not have a "salary" close to 130k in 2001. – user662852 Jan 12 '17 at 14:29
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Alternative Minimum Tax is based not just on your income, but moreso on the deductions you use. In short, if you have above the minimum AMT threshold of income (54k per your link), and pay a tiny amount of tax, you will pay AMT. AMT is used as an overall protection for the government to say "okay, you can use these deductions from your taxable income, but if you're making a lot of money, you should pay something, no matter what your deductions are". This extra AMT can be used to reduce your tax payment in a future year, if you pay regular tax again.

For example - if you have 60k in income, but have 60k in specific deductions from your income, you will pay zero regular tax [because your taxable income will be zero]. AMT would require you to pay some tax on your income above the minimum 54k threshold, which might work out to a few thousand bucks. Next year, if you have 60k in income, but only 15k in deductions, then you would pay some regular tax, and would be able to offset that regular tax by claiming a credit from your AMT already paid.

AMT is really a pre-payment of tax paid in years when you have a lot of deductions. Unless you have a lot of deductions every single year, in which case you might not be able to get all of your AMT refunded in the end.

Wikipedia has a pretty good summary of AMT in the US, here: https://en.wikipedia.org/wiki/Alternative_minimum_tax.

If you think AMT is unfair (and maybe in some cases you might pay it when you think it's "unfair"), look at the root causes of paying AMT listed in that Wikipedia article:

  • Having Stock Option deductions;
  • Having high interest costs on large investments;
  • Having a large amount of depreciation for physical business assets; etc.

I am not trying to convince you that AMT is fair, just that it applies only when someone already has a very low tax rate due to deductions. If you have straight salary income, it would only apply in rare scenarios.

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  • Thanks. Most software engineers make annual salary around 100k and at least 80k. Do their salaries imply very high likelihood that they will have to pay AMT? – Tim Jan 13 '17 at 18:19
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    @Tim No, someone with a salary as their only source of income is very unlikely to pay AMT, unless they have an incredibly high amount of specific deductions. Not things like medical expenses or having a large number of dependents, things like having investment-related expense deductions, or tax credits from foreign countries. You won't pay AMT unless (broadly speaking), your tax on your income is lower than is expected. Ie: if someone with 80k in income is expected to have an effective tax rate of, say, 30%, but due to deductions they have a 15% tax rate, they might pay AMT. – Grade 'Eh' Bacon Jan 13 '17 at 18:23
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Turbox Tax states the following:

"For 2015, the AMT exemption amounts are $53,600 for individual taxpayers, $83,400 for married taxpayers filing jointly and surviving spouses, and $41,700 for married persons filing separately.

This is the amount you're allowed to deduct from your taxable income before applying the AMT."

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    This is valuable information, but not enough to answer the OP's question. – Grade 'Eh' Bacon Jan 12 '17 at 15:46

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