---
title: "What Is alternative minimum tax? | Seek First Glossary"
description: "The alternative minimum tax (AMT) is a second tax calculation for higher incomes. It limits certain tax benefits."
url: https://seekfirst.multisites.ai/glossary/alternative-minimum-tax
publisher: Seek First
phone: +1-866-398-4044
contact: https://seekfirst.multisites.ai/contact
---

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Tax

# alternative minimum tax

The alternative minimum tax (AMT) is a second tax calculation for higher incomes. It limits certain tax benefits. Exercising incentive stock options can trigger it.

The **alternative minimum tax** (AMT) is a parallel way to figure your tax. The IRS says it applies to taxpayers with high economic income by setting a limit on certain tax benefits, so those taxpayers pay at least a minimum amount of tax. You owe AMT only if the tentative minimum tax is greater than your regular tax.

The IRS figures it separately from regular tax: start with taxable income adjusted for certain items, subtract the AMT exemption amount, then apply AMT rates. The exemption amounts and rates are set by law and change, so check the current figures.

AMT matters most to people with stock options. The IRS says you may be subject to AMT in the year you exercise an incentive stock option (ISO).

**For example (round numbers):** you exercise ISOs when the market price is $30,000 above your exercise cost. You sell nothing, so you get no cash. That $30,000 can still count as an AMT adjustment for the year. A CPA should run the AMT figures before you exercise, not after.

Why it matters: planning can avoid a surprise bill. If you paid AMT in an earlier year, you may qualify for a credit later.

Read our [guide to RSUs, ISOs and ESPPs](https://seekfirst.multisites.ai/guides/equity-compensation-rsus-isos-espps).

[Read nextProactive tax planning: Roth conversions, equity pay and giving, planned before tax season](https://seekfirst.multisites.ai/tax-planning)

## Related terms

-   [restricted stock unit](https://seekfirst.multisites.ai/glossary/restricted-stock-unit)
-   [tax-loss harvesting](https://seekfirst.multisites.ai/glossary/tax-loss-harvesting)
-   [Roth conversion](https://seekfirst.multisites.ai/glossary/roth-conversion)

## Sources

1.  [IRS: Topic no. 556, Alternative Minimum Tax](https://www.irs.gov/taxtopics/tc556)
2.  [IRS: Topic no. 427, Stock options](https://www.irs.gov/taxtopics/tc427)

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