The latest changes to the alternative minimum tax (AMT) system are in the American Taxpayer Relief Act (ATRA). This tax law has three provisions on the AMT that are important for high-income taxpayers, particularly those who exercise incentive stock options.
- ATRA permanently indexed the AMT income exemption amounts for inflation in future years.
- The law indexed the income thresholds where the phaseout of the AMT income exemption begins (the first time this had ever been indexed). AMTI exemption amounts are phased out by 25 cents for every dollar of AMTI over specified exemptions.
- Achieving yet another first, ATRA also indexed the income threshold where the 26% AMT rate ends and the 28% AMT rate begins.
The table below summarizes the AMT income exemption amounts, phaseouts, and rate thresholds that apply to income in the 2017 tax year. For further details about the AMT calculation, see the related FAQ.
|Filer status in 2017
||AMT income exemption amount
||Exemption amount phaseout starts
||Exemption amount phaseout ends
||Point where rate
26% to 28%
(married filing separately: $93,900)
For taxpayers who have high incomes, the AMT income exemption amounts offer no effective AMT reduction. If you do have to pay the AMT, there are planning techniques that can help. See FAQs on myStockOptions.com about how to minimize AMT liability, or how to manage the AMT if you know you must pay it.
AMT: Political Past And Future
The permanent indexing of the AMT income exemption amounts for inflation was an important development. Before the passage of the American Taxpayer Relief Act, Congress had enacted temporary AMT relief every year for several years as a stopgap measure to keep middle-income people from being unfairly hit by the AMT. This worked as an interim measure, but the annual process in Congress for passing each patch was tortuous, politically charged, and full of uncertainty. Eventually, there was a consensus that the matter was too important to be left to last-minute legislative activity every year. Without annual increases to control the spread of the AMT, the AMT exemption amounts would have returned to the low levels of 2000 ($45,000 for joint filers and $33,750 for singles), imposing the AMT on a vast population of middle-income taxpayers it was never intended to tax. By essentially automating the annual AMT patch, the indexing of the exemptions for inflation obviated the former annual need for Congressional action and eliminated the related yearly uncertainty.
Looking ahead, it is likely that the AMT will be either reformed or entirely repealed under the new president and Republican Congress.