How this instrument works
The Alternative Minimum Tax is a second, parallel tax computed alongside the regular one, using a wider income base and a flatter rate structure, with the filer owing whichever bill is higher. It exists because a small set of preference items — the state and local tax deduction, certain private-activity bond interest, and the bargain element on exercised incentive stock options among them — can shrink regular taxable income a long way below what AMT treats as taxable, and Congress built AMT to put a floor under how far that gap can go.
This instrument starts from Alternative Minimum Taxable Income, $ (AMTI) and runs the two steps that follow it: an $81,300 exemption that survives untouched at low AMTI but phases out 25 cents per dollar of AMTI above $578,150 (2023, single filers), and then a two-tier rate — 26% on the first $220,700 of the resulting AMT base, 28% on anything past it. Push AMTI high enough — past roughly $903,350 — and the exemption is fully gone, so every additional dollar is taxed with no cushion at all.
What this sheet does not do is build AMTI from a return. That figure comes from regular taxable income plus add-backs reported on Form 6251, and assembling it is its own exercise involving a W-2, a Schedule A, and any ISO exercises on Form 3921. Feed the resulting AMTI in here and the instrument shows only the exemption and rate arithmetic that turns it into a tentative minimum tax — the number then compared against regular liability to see whether AMT bites at all.
- Enter your Alternative Minimum Taxable Income, $ — the AMTI figure assembled on Form 6251, after adding back items like the SALT deduction and ISO bargain elements.
- Read AMT exemption applied — the instrument runs the $81,300 exemption through the phase-out and reports exactly how much of it survives at that AMTI.
- Read Tentative minimum tax (AMT) — AMTI minus the exemption, taxed at 26% up to $220,700 and 28% above it.
- Raise AMTI past $578,150 to watch the exemption shrink, and compare the resulting Tentative minimum tax (AMT) against your regular tax bill to see which one governs.
Worked example — $200,000 of AMTI
Enter $200,000 of AMTI. That sits well under the $578,150 phase-out threshold, so the phase-out term — 25% of AMTI minus $578,150 — comes out negative, floors at zero, and the full $81,300 exemption survives untouched, which is exactly what AMT exemption applied shows.
Subtracting the exemption from AMTI leaves a $118,700 AMT base, entirely below the $220,700 rate-split point, so the flat 26% rate applies end to end: $118,700 × 0.26 = $30,862, the Tentative minimum tax (AMT) this instrument returns. That figure is a candidate bill, not a final one — the IRS compares it against regular tax liability and only collects the difference when this tentative figure comes out higher.
Questions
What is Alternative Minimum Taxable Income, and where does it come from?
AMTI starts from regular taxable income and adds back a defined list of items the regular tax code allows but AMT does not — the state and local tax deduction, certain private-activity bond interest, and the bargain element on exercised incentive stock options are the common ones. This instrument takes AMTI as a direct input; it does not rebuild it from a W-2 or Schedule A.
Why does the exemption shrink as AMTI rises?
The $81,300 exemption (2023, single filers) phases out 25 cents per dollar of AMTI above $578,150, a design meant to keep the parallel tax aimed at higher incomes rather than everyone. The exemption stays full right up to $578,150, then falls in a straight line until roughly $903,350, where 25% of the excess equals $81,300 and the cushion disappears entirely.
Why are there two AMT rates, 26% and 28%?
The AMT base — AMTI minus the exemption — is taxed at 26% up to $220,700 and 28% on the portion above that line, a two-step schedule flatter than the regular seven-bracket system it stands in for. Only the slice of the base past $220,700 sees the higher rate; the first $220,700 is always taxed at 26% regardless of how large the total base grows.
Do I actually pay this Tentative minimum tax (AMT) figure?
Not necessarily. AMT works as a floor, not an add-on: the IRS compares tentative minimum tax against regular tax liability, adjusted for certain credits, and bills only the difference when the tentative figure is higher. If regular tax already clears it, this calculation adds nothing to the bill for the year.
Who ends up owing AMT in practice?
Filers in high state-income-tax states who itemize heavily, and employees who exercise incentive stock options and hold the shares past year-end rather than selling, hit AMT most often — both create preference items that push AMTI well above regular taxable income. Before the exemption and thresholds were indexed to inflation starting in 2013, ordinary wage growth alone dragged millions more filers into AMT each year.
Does this instrument build the ISO or SALT add-back into AMTI for me?
No. This sheet takes AMTI as a single number and runs only the exemption phase-out and the two-tier rate on it — assembling AMTI from a W-2, Schedule A, and any ISO exercises reported on Form 3921 happens upstream, on Form 6251's earlier lines. Treat this instrument as the last step of that process, not a substitute for it.
References
- IRS — About Form 6251, Alternative Minimum Tax – Individuals
- IRS — Topic no. 556, Alternative Minimum Tax
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.