Form 6251: Alternative Minimum Tax-Individuals is an IRS tax form used to determine the amount of Alternative Minimum Tax (AMT) that a taxpayer may owe. Some taxpayers with higher incomes can claim certain deductions that allow them to reduce their regular tax obligations. The AMT sets an upper limit on how much that deduction can be as a way of ensuring that wealthier individuals contribute adequately to taxes. If you are among those to whom it applies, you will pay the AMT instead of standard income taxes.
Key Takeaways
- Form 6251 is used to assess whether taxpayers owe alternative minimum tax instead of standard income tax.
- The AMT was designed to ensure that the wealthy pay their fair share of taxes.
- Changes to the AMT made by the Tax Cuts and Jobs Act greatly reduced how many taxpayers are required to pay it.
- For 2023, the IRS set the AMT at $81,300 (compared to $75,900 in 2022) for individuals and $126,500 ($118,100 in 2022) for joint filers who are married.
- Introduced in 1969, the AMT is a parallel tax system to the regular income tax.
Essential Insights on Form 6251: Alternative Minimum Tax-Individuals
Every taxpayer must evaluate annually whether they need to pay AMT. Depending on your income level, you may not be subject to it.
The AMT is a parallel tax system running alongside the regular income tax. Enacted in 1969, it was originally designed to target and collect taxes from a select group of wealthy individuals and families who were otherwise evading income taxes. The AMT achieves this by limiting the number of itemized deductions a taxpayer can claim. For example, deductions for state and local taxes are not allowed, and taxpayers impacted by the AMT cannot take the standard deduction. The AMT operates with two rates—26% and 28%—as opposed to the seven federal tax brackets, which range from 10% to 37%.
Filing Form 6251: Step-by-Step Guide
Form 1040: U.S. Individual Tax Return includes a worksheet to help taxpayers determine whether AMT is owed, but this provides only basic computations. Form 6251 offers a more detailed and accurate assessment. Simply completing it does not mean it has to be filed. You may also use tax software or seek help from a tax professional. Only if there is AMT owed will Form 6251 need to be attached to Form 1040.
The AMT requires affected taxpayers to calculate their tax bills under both the ordinary income tax system and the AMT, paying the higher of the two. Upon calculating your AMT, you can claim an exemption based on your filing status.
The AMT exemption is higher than the standard exemption but phases out beyond a certain income threshold. In 2023, the AMT exemption for individual filers is $81,300 ($75,900 in 2022), and for married joint filers, it is $126,500 ($118,100 in 2022). The exemption starts phasing out when income reaches $578,150 for individual filers and $1,156,300 for married joint filers.
All pages of Form 6251 are available on the IRS website.
Special Considerations
Years of adjustments for inflation were lacking, which caused the AMT to affect a broader group of taxpayers than initially intended. Congress had implemented annual inflation adjustments to limit the AMT’s reach before making a permanent fix. They indexed future exemption levels to inflation as part of the American Taxpayer Relief Act of 2012.
In 2019, the AMT collected $4.7 billion, roughly 0.3% of individual income tax revenue, substantially lower than the $36.2 billion collected in 2017. This decrease mainly resulted from changes made to the AMT by the Tax Cuts and Jobs Act (TCJA) of 2017. Starting in 2018, the TCJA triggered a higher AMT exemption and increased the level at which the exemption begins to phase out.
Related Terms: Taxpayer, Standard Deduction, IRS, Tax Cuts and Jobs Act, Itemized Deductions
References
- Internal Revenue Service. “About Form 6251, Alternative Minimum Tax-Individuals”.
- Internal Revenue Service. “Six Facts the IRS Wants You to Know About the Alternative Minimum Tax”.
- U.S. Congress. “H.R.1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”.
- Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2023”.
- U.S. Government of Accountability Office. “Alternative Minimum Tax: An Overview of Its Rationale and Impact on Individual Taxpayers”, Page 1.
- Internal Revenue Service. “Instructions for Form 6251”, Page 2.
- Internal Revenue Service. “Instructions for Form 6251 Alternative Minimum Tax—Individuals”, Page 9,12.
- Internal Revenue Service. “Instructions for Form 1040”.
- Internal Revenue Service. “Instructions for Form 6251”, Page 1.
- Internal Revenue Service. “Form 6251”.
- U.S. Congress. “H.R.8 - American Taxpayer Relief Act of 2012”.
- Tax Policy Center. “How Much Revenue Does the AMT Raise?”
