What is Form 6251: Individual Alternative Minimum Tax?
The IRS Form 6251: Alternative Minimum Tax—Individuals determine the amount of alternative minimum tax (AMT) a taxpayer may owe. Certain deductions can lower the tax requirements of high-income taxpayers. The AMT limits the deduction amount to ensure that wealthy people pay enough taxes. Those who qualify pay the AMT instead of ordinary income taxes.
Understanding Form 6251: Individual Alternative Minimum Tax
Each taxpayer must decide if they must pay AMT annually. Depending on your salary, you may not need to.
AMT parallels the regular income tax. The 1969 law was intended to identify and collect taxes from a few wealthy people and families evading income taxes.
Taxpayers are limited in the number of itemized deductions they can claim. Example: State and local tax deductions are prohibited. Additionally, taxpayers affected by the AMT cannot claim the standard deduction.
The seven federal tax bands run from 10% to 37%, while the AMT has two rates (26% and 28%).
How to File Form 6251: Individual Alternative Minimum Tax
Form 1040: U.S. Individual Tax Return offers a worksheet to calculate AMT, although it only covers basic computations. Form 6251 is more complete and provides a more accurate answer, but completing it does not require filing. Alternatively, utilize tax software or hire a tax professional. Form 6251 must accompany Form 1040 if AMT is due.
Those subject to the AMT must calculate their tax liability using the traditional income tax system and the AMT, paying the highest amount. Calculate your AMT and claim an exemption according to your filing status.
The AMT exemption is substantially higher than the regular exemption but goes off at a specific income level. Individual AMT exemption is $81,300 in 2023 ($75,900 in 2022), and for married joint filers, $126,500 ($118,100 in 2022)—the exemption phases out when income exceeds $578,150 for individuals and $1,156,300 for married couples.
The IRS website has all Form 6251 pages. Download Here
Special Considerations
The AMT was applied to more taxpayers than anticipated due to a lack of inflation adjustments. As part of the American Taxpayer Relief Act of 2012, Congress made annual inflation adjustments to limit the AMT before permanently indexing future exemption levels to inflation.
The AMT collected $4.7 billion in 2019, or 0.3% of individual income tax collection, down from $36.2 billion in 2017. AMT amendments in the 2017 Tax Cuts and Jobs Act (TCJA) were primarily to blame for this decline. In 2018, TCJA raised the AMT exemption and phased it out.
Conclusion
- Form 6251 determines whether people owe alternative minimum tax or regular income tax.
- The AMT was created to ensure that wealthier taxpayers pay their fair share.
- The Tax Cuts and Jobs Act considerably lowered the burden on taxpayers by changing AMT.
- The IRS raised the 2023 AMT to $81,300 (75,900 in 2022) for individuals and $126,500 ($118,100 in 2022) for married joint filers.
- The government created AMT, a parallel income tax system, in 1969.
