Alternative Minimum Tax (AMT) Explained: Who Pays It and How It Works (2026)
By Wealthvieu · Updated
The Alternative Minimum Tax was created to prevent the wealthy from paying zero tax. Today, it mainly hits upper-middle-income earners in high-tax states. Here’s how it works.
Table of Contents
2026 AMT Exemption Amounts
Filing Status
AMT Exemption
Phase-Out Begins
Phase-Out Complete
Single / Head of Household
$85,700
$609,350
$952,150
Married Filing Jointly
$133,300
$1,218,700
$1,751,900
Married Filing Separately
$66,650
$609,350
$875,950
AMT Tax Rates
AMT Taxable Income
AMT Rate
Up to $248,300 (MFJ) / $124,150 (Single)
26%
Above $248,300 (MFJ) / $124,150 (Single)
28%
How AMT Is Calculated
Step
Action
1
Start with regular taxable income
2
Add back AMT “preference items” (see below)
3
Subtract AMT exemption
4
Apply AMT rates (26% / 28%)
5
Compare AMT to regular tax
6
Pay the higher amount
AMT Preference Items (What Gets Added Back)
Item
Regular Tax Treatment
AMT Treatment
State/local tax deduction (SALT)
Deductible (up to $10,000 TCJA cap)
NOT deductible
Incentive stock option (ISO) exercise
Not taxed at exercise
Spread is taxable at exercise
Private activity municipal bond interest
Tax-exempt
Taxable for AMT
Standard deduction
Allowed
NOT allowed (before TCJA changes)
Home equity loan interest (non-home use)
Was deductible (pre-TCJA)
NOT deductible
Certain depreciation methods
Accelerated
Straight-line required
Mining exploration costs
Currently deductible
Must be spread over 10 years
Research and development costs
Currently deductible
Must be capitalized
The #1 AMT trigger is incentive stock option exercise. The spread between exercise price and fair market value is AMT income.
Who Pays AMT?
Income Range
% Likely to Owe AMT
Primary Trigger
Under $100,000
<1%
Very unlikely
$100,000-$200,000
2-3%
ISOs, large SALT
$200,000-$500,000
15-25%
ISOs, SALT, high state taxes
$500,000-$1,000,000
10-15%
Moderate (exemption phases out)
Above $1,000,000
5-8%
Regular tax usually higher
The TCJA (2017 tax reform) dramatically reduced the number of AMT payers by:
Raising the AMT exemption amount
Capping SALT deduction at $10,000 (which effectively aligned regular tax with AMT)
AMT and Stock Options (ISOs)
The most common AMT trap for tech workers:
Scenario
Example
ISO exercise: 10,000 shares at $5 exercise, $25 FMV
Spread = $200,000
Regular tax: $0 (no tax on ISO exercise)
$0
AMT: $200,000 additional income
~$52,000 AMT
If stock drops before year-end
Still owe AMT on phantom gain
ISO AMT Strategies
Strategy
How It Works
Exercise + sell same year (disqualifying disposition)
Converts to ordinary income, no AMT issue
Exercise in January (for max time to sell)
Gives 23 months to hold for LTCG treatment
Spread exercises across years
Stay below AMT threshold each year
Calculate AMT before exercising
Know exact tax cost before committing
Exercise when stock price is low
Smaller spread = less AMT
AMT Credit
If you pay AMT, you may get a credit in future years:
Feature
Details
What it is
Credit for AMT paid on “timing” items (like ISOs)
When you can use it
In years when regular tax exceeds AMT
How much
Dollar-for-dollar credit against regular tax
Carryforward
Indefinite — use in any future year
Refundable?
Partially (50% of unused credit refundable each year)
