Tuesday, August 2, 2016


Here is something that you should know if you are or will be a victim of the dreaded Alternative Minimum Tax (AMT) – which I recently had to explain to a client who was a victim for 2015.

The “published” AMT tax rates are 26% and 28%.  But the true “effective” tax rates could actually be 32.5% and 35%.

Your AMT exemption, based on your filing status, is reduced by 25% for every dollar that your Alternative Minimum Taxable Income (AMTI) exceeds a specific threshold amount, again based on your filing status.

For 2016 the AMT threshold amounts are –

    $119,700 – Single and Head of Household
    $159,700 – Married Filing Joint and Qualifying Widow(er)
    $ 79,850 – Married Filing Separately

The AMT base exemption amounts are –

    $53,900 - Single and Head of Household
    $83,800 - Married Filing Joint and Qualifying Widow(er) 
    $41,900 - Married Filing Separate 

So if you are filing a joint return and your MAGI is $169,700 you reduce your exemption, and increase the income subject to AMT, by $2,500.  The exemption allowed will be $81,300 and not $83,800.  So you will be paying AMT on $88,400.

If your MAGI was $159,700 you would get the full exemption of $83,800 and pay AMT on $75,900. 

The additional $10,000 in income increases the amount of income subject to AMT by $12,500.  In the 26% AMT bracket that $10,000 of excess income cost you $3,250 in federal tax ($12,500 x 26%), or 32.5%. 

Of course there does come a point when the level of your AMTI totally wipes out the allowable exemption.  Once you reach this point additional income is effectively taxed at the published rate of 26% or 28%.

Any questions? 

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