The alternative minimum tax (AMT) is a special tax designed to prevent the very wealthy from finding so many loopholes and tax shelters in the regular tax system that they end up paying little or no tax on their income. The way the AMT works is by requiring a person to calculate his/her tax under the regular tax system and again under the alternative minimum tax system, which uses different rules and allows many fewer deductions that the regular system. If the AMT is less than the regular tax, there is no problem. If the alternative minimum tax is higher than the regular tax, the difference between the two is added to the regular tax as an alternative minimum tax.
Unfortunately, there are several flaws inherent in the system. First, since it is not indexed to allow for increases in cost of living or inflation, many upper middle class households are now responsible for having to pay the AMT. The original plan was for this tax to only affect the ultra wealthy. Congress has done some work on patching the system to keep the tax from affecting any more middle class families than necessary, but the overall system still needs to be overhauled completely to maintain the original intent behind its creation.
Another major flaw in the alternative minimum tax system is the fact that since it is a parallel separate tax system from the normal tax laws, the recent tax cuts for the wealthy instituted by our last president have made even more middle class families fall into the area where they are affected by this tax. In general, anyone who makes more than $75,000 in income per year must calculate the tax under both systems to determine if they have to pay the alternative tax. Once income reaches $100,000, it is almost guaranteed that individuals and families will be required to pay at least a small amount of alternative tax in addition to any regular tax owed.
Despite the fact that the alternative minimum tax was created as a means to keep the ultra wealthy from taking advantage of tax loopholes in order to avoid paying any taxes at all, it has come to a point where it now affects many upper middle class families as well as the wealthy. Unfortunately, it does not appear that congress will take any meaningful action to bring the AMT back in line with the original intent behind its inception anytime soon.