The alternative minimum tax (AMT) is a second, parallel way of calculating federal income tax. It exists so that people who benefit from certain deductions and favorable income rules still pay a minimum amount of tax. For most households it never applies, but it can surprise people who exercise incentive stock options, have very large state and local tax deductions, or have other unusual items. This guide covers how AMT works, the 2025 and 2026 numbers, and what to watch.
How AMT works
You calculate your regular tax, then recalculate your taxable income using AMT rules. That alternative income starts with your regular taxable income, adds back certain adjustments and preferences, and then subtracts an exemption amount. The result is taxed at 26% on the first slice and 28% above it. If that "tentative minimum tax" is more than your regular tax, you pay the difference as AMT.
The 26% rate applies to the first $239,100 of AMT taxable income for 2025 ($119,550 if married filing separately), and the 28% rate to the amount above that. For 2026 the break point is $244,500 ($122,250 married filing separately).
Exemption and phase-out amounts
| Filing status | 2025 exemption | 2025 phase-out begins | 2026 exemption | 2026 phase-out begins |
|---|---|---|---|---|
| Single or head of household | $88,100 | $626,350 | $90,100 | $500,000 |
| Married filing jointly or qualifying surviving spouse | $137,000 | $1,252,700 | $140,200 | $1,000,000 |
| Married filing separately | $68,500 | $626,350 | $70,100 | $500,000 |
The One Big Beautiful Bill Act made the higher exemption levels permanent, but it also lowered the phase-out starting point and made the exemption disappear faster. For years after 2025 the exemption is reduced by 50 cents for every dollar of income above the starting point, up from 25 cents. The $1,000,000 joint threshold is not adjusted for inflation before 2027. The effect is that high earners will see AMT more often in 2026 and later than in 2025.
What commonly triggers AMT
- Incentive stock options. For regular tax, exercising an ISO and holding the shares does not create income. For AMT, the spread between the stock's value and your exercise price is generally an adjustment. A large exercise can create a large AMT bill even though you received no cash. See stock options: ISO, NSO and RSU.
- Standard deduction. The standard deduction is not allowed for AMT, so it is added back. The IRS notes that if you owe AMT, you may lower total tax by itemizing even when the itemized total is below the standard deduction.
- State and local taxes. Taxes deducted on Schedule A are an AMT adjustment.
- Private activity bond interest from certain municipal bonds.
- Depreciation and some business and investment items, which are computed differently for AMT.
- The new senior deduction. The enhanced senior deduction on Schedule 1-A is added back for AMT.
Example
Example: A single software engineer has regular taxable income of $120,000 in 2025 and exercises ISOs with a spread of $150,000 between market value and exercise price. Simplified, her AMT income is $270,000. After the $88,100 exemption, $181,900 is taxed at 26%, for a tentative minimum tax of $47,294. Her regular tax on $120,000 is $21,647, so AMT is about $25,647. (This illustration ignores other adjustments and the add-back of the standard deduction. A real calculation can differ.) Planning questions in a case like this include how many options to exercise in a given year and whether to sell some shares in the same year.
The credit for prior-year AMT
If you pay AMT because of timing items such as ISO exercises, you may get a minimum tax credit on Form 8801 in later years, when regular tax exceeds your tentative minimum tax. It can be carried forward. Keep your Form 6251 and 8801 records, because the credit can span many years.
Form 6251 filing
You must attach Form 6251 if your tentative minimum tax is greater than your regular tax, if you claim certain credits like the credit for prior-year minimum tax, or if other conditions in the instructions apply. Most tax software calculates it automatically.
State considerations
AMT is a federal tax. States have their own rules. See our Illinois tax guide for state basics, and ask about the state tax treatment of stock options and other items.
How we can help
We project AMT before you exercise options or make a large transaction, compare strategies across years, and prepare Forms 6251 and 8801. See tax planning and our page for IT consultants and tech professionals, or contact us.
Frequently asked questions
Do most people pay AMT?
No. Most households never owe it because the exemption is large relative to typical income. It matters most when you exercise ISOs or have an unusually high income.
Is the AMT exemption permanent now?
The higher exemption amounts were made permanent by the One Big Beautiful Bill Act, but the phase-out rules changed starting in 2026.
Can I get the AMT back?
Sometimes. A minimum tax credit on Form 8801 can offset regular tax in later years when AMT was caused by timing differences such as ISO exercises.
Does the SALT cap change AMT?
State and local taxes deducted on Schedule A are added back for AMT, so the SALT deduction does not reduce AMT income. That is a separate effect from the regular SALT cap.
Official sources
- IRS: Instructions for Form 6251 (2025)
- IRS: Topic no. 556, Alternative Minimum Tax
- IRS: Rev. Proc. 2024-40 (2025 inflation adjustments)
- IRS: Rev. Proc. 2025-32 (2026 inflation adjustments)
- Public Law 119-21 (One Big Beautiful Bill Act)
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.