Alternative minimum tax (AMT)
The alternative minimum tax (AMT) was designed to ensure that all taxpayers pay at least the minimum federal income tax for their income level, no matter how many deductions or credits they claim.
The AMT is actually an extra tax, calculated separately and added to the amount the taxpayer owes in regular income tax. Some items that are usually tax exempt become taxable and special tax rates apply. For example, income on certain tax-free bonds is taxable.
Increasing numbers of taxpayers trigger the AMT if they deduct high state and local taxes or mortgage interest expenses, exercise a large number of stock options, or have significant tax-exempt interest.
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