Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the Alternative Minimum Tax AMT in 1969, targeting higher-income taxpayers who could claim so many deductions they owed little or no income tax. The AMT provides an alternative set of rules for calculating a taxpayer’s income tax. In general, these rules should determine the minimum amount of tax that someone with a certain amount of income should be required to pay. If a taxpayer’s regular tax falls below this minimum, he has to make up the difference by paying alternative minimum tax.
A taxpayer may have to pay the AMT if his taxable income for regular tax purposes (plus any adjustments and preference items that apply to him) are more than the AMT exemption amount. The AMT exemption amounts are set by law for each filing status. For tax year 2010, Congress raised the AMT exemption amounts to the following levels:
$72,450 for a married couple filing a joint return and qualifying widows and widowers;
$47,450 for singles and heads of household;
$36,225 for a married person filing separately.
The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2010.