Compare differences in the two tax systems to see how deductions, exemptions, and your tax bracket can significantly shape how much you will owe
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High Level Differences
| General Category | Regular Income Tax | Alternative Minimum Tax |
|---|---|---|
| Marginal Tax Brackets | 7 brackets ranging from 0% - 37% marginal tax rate | 2 brackets: 26% and 28% marginal tax rate |
| Adjustments & Deductions | Uses the Standard deduction or various Itemized deductions such as mortgage interest, and state and local tax (SALT) | Only allows for a smaller subset of specific deductions. AMT does not allow for the standard deduction |
| Exemptions | None for year 2024* | Significant AMT specific exemption based on filing status and income |
The Tax Cuts and Jobs Act (TCJA) of 2017 removed all personal and dependent exemptions for your regular income tax. You can however, receive a Tax credit for items such as dependent care, which ultimately functions similarly.
Marginal Tax Brackets for Taxable Income Over:
| Regular Income Tax Rate | Single Filing: | Married, Filing Separately: | Married, Filing Jointly: |
|---|---|---|---|
| 10% | $0 | $0 | $0 |
| 12% | $10,275 | $10,275 | $20,550 |
| 22% | $41,775 | $41,775 | $83,550 |
| 24% | $89,075 | $89,075 | $178,150 |
| 32% | $170,050 | $170,050 | $340,100 |
| 35% | $215,950 | $215,950 | $431,900 |
| 37% | $539,900 | $323,925 | $647,850 |
| Alternative Minimum Tax Rate | Single Filing: | Married, Filing Separately: | Married, Filing Jointly |
|---|---|---|---|
| 26% | $0 | $0 | $0 |
| 28% | $206,100 | $103,050 | $206,100 |
Your eyes do not deceive you! AMT is one of the rare instances where being married on your tax filing status may do your more harm than good. The income cutoff is the same whether you are a single individual or a married couple filing jointly
Deductions
| Above-the-line Deductions | Included in Regular Income Tax system | Included in AMT system |
|---|---|---|
| Traditional 401k | Yes | Yes |
| HSA | Yes | Yes |
| Traditional IRA | Yes | Yes |
| Student Loan Interest | Yes | Yes |
| Regular Deductions | Included in Regular Income Tax system | Included in AMT system |
|---|---|---|
| Standard Deduction | Yes | No |
| Mortgage Interest* | Yes | Yes |
| Personal Exemption* | Removed in year 2020 | Removed in year 2020 |
| Medical Expenses* | Yes | No |
| SALT* | Yes | No |
Shown are only some of the most used itemized deductions. The AMT system has a much more complicated list of lesser-used exemptions/deductions. Consult with a tax advisor if you fall into this situation.
As you can see, all of the ‘above-the-line’ deductions still apply with the AMT tax system. Some may or may not automatically be taken from your paycheck, and thus reflected on your W2. Pay close attention when filing your taxes for the right numbers to input.
Exemptions
| Filing Status | AMT Exemption Amount | AMT Phaseout Threshold |
|---|---|---|
| Single | $75,900 | $539,900 |
| Married Filing Separately | $59,050 | $539,900 |
| Married Filing Jointly | $118,100 | $1,079,800 |
Given the Tax Cuts and Jobs Act that was passed in 2017, exemptions are no longer relevant for the Regular Income Tax System (at least until 2025). Thus, the above table only applies to the Alternative Minimum Tax system.
The AMT Exemption & Phaseout Thresholds dictate three things:
- If your Alternative Minimum Taxable Income (AMTI) is below the exemption amount, then you do not owe any AMT
- If your AMTI is above the exemption amount, you will be able to subtract the exemption amount from your AMTI to reach your actual final taxable income. This is similar to how a deduction works in your regular tax filings
- If your AMTI is over a ‘Phaseout threshold’, that means you cannot deduct the full AMT exemption amount. For every $1 of AMTI you have over the threshold, the exemption amount reduces by $0.25 until the exemption disappears completely.
For Example:
- If you are a single filer and your AMTI comes out to $549,900, you would be $10,000 over the phaseout threshold. As a result, the AMT exemption you can apply would be $2,500 (25% of 10,000) less than the normal $75,900 exemption amount, or $73,400.
- In other words, your final AMTI in this case would be $547,400 (549,900 - 2,500).
Next up, learn how the Alternative Minimum Tax is actually calculated with easy to follow examples