The Alternative Minimum Tax, known as the AMT, seemed to work like an ATM for the U.S. Treasury, collecting from a lot of less-then-wealthy individuals, before the 2017 tax reform bill started adjusting the trigger earnings for inflation. One Big Beautiful Bill Act tax law changes also will mean some added taxpayers will now need to take the AMT into account in tax planning. (Photo by Ali Mkumbwa on Unsplash)
The Alternative Minimum Tax burden was eased largely due to exemption amount inflation bumps. Note, however, that some One Big Bill changes could cause more people to face the AMT starting in 2026.
What’s worse than figuring your tax bill every spring? Having to figure a second, higher, parallel amount you might owe.
That’s a situation that taxpayers who owe the Alternative Minimum Tax, or AMT, end up facing at filing time.
The good news for millions of Americans is that the AMT bite has been much less of a threat. Legislative changes over the last couple of decades have taken inflation into account and increased the AMT income amounts that trigger the separate tax system’s 26 percent and 28 percent rates.
However, tax changes in another Republican tax bill, the One Big Beautiful Bill Act (OBBBA) that became law on July 4, could force more taxpayers to again deal with the AMT.
This post, the sixth of the ol’ blog’s annual 10-part look at how inflation affects a variety of tax provisions, looks at the 2026 AMT adjustments, the OBBBA’s changes that could affect it, and a brief history of this special tax.
Why two taxes: Let’s start at the AMT beginning. Its creation 56 years ago made, and still makes, sense.
It was added to the Internal Revenue Code in 1969 when lawmakers discovered that a few rich taxpayers — and we’re really talking few, specifically 155 people who back then made more than $200,000 — avoided paying any tax.
The AMT’s basic goal was simple. It required they pay at least some tax.
That’s still the rule, with taxpayers who potentially face the AMT doing double tax duty, computing their annual tax liability under both the regular and alternative tax methods. When the calculations are done, you pay the higher of the two tax amounts.
No indexing at the beginning: In its original form, the AMT worked well. In fact, too well.
The earnings amount that meant taxpayers had to at least calculate AMT was not indexed for inflation. So, as individuals’ incomes increased, and the tax breaks that are allowed under the AMT grew, a lot of decidedly not-rich taxpayers ended up paying the alternative tax.
The AMT amount is due when it is larger than the tax liability calculated under the ordinary federal income tax rates.
For these unintended tax targets, the AMT effectively was a tax ATM for the Internal Revenue Service.
Congress finally changed the law in 2013 to index the AMT for inflation. The key here is the amount of income that’s not subject to the AMT. If you fall under this exclusion cap, you don’t have to worry about doing double the tax work on Tax Day. The AMT became even less burdensome for more taxpayers with the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017. That GOP major tax reform measure increased the base AMT income exemption amount that’s subject to inflation bumps, as well as hiked the threshold at which that exemption phases out.
AMT’s disallowed tax breaks: Another TCJA change also lessened the AMT impact.
The parallel tax requires taxpayers who itemize to add back some Schedule A claims before they figure their alternative tax amount. But since the TCJA greatly increased standard deduction amounts, fewer taxpayers than ever are itemizing, and therefore no longer have to worry about the AMT add-backs and the possibility of paying it instead.
In 2017, before enactment of the TCJA, more than 5 million taxpayers filed an AMT return. That number dropped to just 200,000 in 2018 when the tax reform law’s provisions took effect, and has held steady at that level in the subsequent years.
Another Republican tax measure, however, could mean the AMT numbers will grow.
OBBBA potentially costly AMT changes: The OBBBA boosted, through 2028, the amount of the itemized state and local taxes (SALT) deduction from $10,000 to $40,000.
Many of the taxpayers with large SALT amounts who opt to claim the larger deduction on their 2025 (and beyond) taxes, also will have to face the AMT, or at least the calculation process.
Plus, beginning in 2026, the OBBBA lowers the income thresholds for phasing out the AMT exemptions. For single taxpayers, it goes to $500,000 next year instead of 2025’s $626,350. Married filing jointly couples will see their 2025 threshold of $1.25 million reset in 2026 to $1 million.
The OBBBA also, again in 2026, doubles the phase-out rate, from 25 percent to 50 percent, at which the AMT exemption is reduced. All these OBBBA changes are expected to push more high-income individuals over their AMT exemption levels.
AMT’s inflation adjustments: The income exemption levels are key to finding out whether you’ll need to worry about the AMT. Those inflation-adjusted amounts weren’t changed by the OBBBA.
The 2026 AMT exclusion ranges, i.e., the amount of individual taxpayer earnings that will be excepted from AMT when you file your tax return in 2027, start at:
- $90,100 for single and head-of-household taxpayers,
- $140,000 for married couples filing joint returns or surviving spouses, and
- $70,100 for married couples filing separately.
The 2025 AMT exclusion ranges that will apply when you file your return next year start at:
- $88,100 for single and head-of-household taxpayers,
- $137,000 for married couples filing joint returns or surviving spouses, and
- $68,500 for married couples filing separately.
Exemptions start phasing out once taxpayers hit a certain level for their filing status. As noted earlier, the OBBBA resets these levels at lower amounts.
For the 2025 tax year, exemptions for single filers start phasing out once AMT income hits $626,350. The phaseout begins at $1,252,700 for married taxpayers who file jointly. In 2026, the phase-out for single taxpayers starts at $500,000. It drops to $1 million next year for married filing jointly couples.
Other AMT calculations: The minimum tax also applies in other filing instances.
For estates, the exemption amount in 2025 for these legal and financial vehicles is $31,400. It is $30,700 for the 2025 tax year.
The AMT also affects young people subject to the kiddie tax, discussed in this year’s inflation series Part 5 look at capital gains.
For the 2026 tax year, a child to whom the kiddie tax applies has an AMT exemption that’s the child’s annual amount of earned income — that’s wage or salary money, not the investment income to which the kiddie tax applies — plus $9,750. That “plus” amount for 2025 is $9,550. All these AMT exemptions for both the 2026 and 2025 tax years should save plenty of, but not all, filers from the hassle of doing two separate tax computations.
Payroll taxable amount going up, too: As the AMT shows, earning more money does have some drawbacks. Still, I’ve never met anyone who’s turned down a raise.
If you do get a pay hike in 2026, good for you! But you’ll also need to note another amount that’s adjusted each year and could affect your taxes.
I’m talking about payroll taxes. As we all learned as soon as we got our first paychecks, Uncle Sam gets a cut not just via the Internal Revenue Code, but also through the Federal Insurance Contributions Act, or FICA as it often appears on pay stubs, assessments.
The payroll tax amounts come out of our regular pay to help fund the Social Security and Medicare programs.
The Social Security portion is 6.2 percent of our income. This percentage also is collected as the self-employment tax that must be calculated and paid via Schedule SE by folks who are their own bosses.
But there’s a limit on how much of your pay is subject each year to the Social Security tax. This amount, known as the wage base, is determined not by the tax code, but by the Social Security Administration (SSA), and is revised to reflect the increased cost of living early each fall.
The SSA on Oct. 24 announced the wage base will go up in 2026 to $184,500. That’s a nice increase from the 2024 wage base of $176,100.
This means up to $8,400 more of your income, if you make it all the way up to the wage base amount, could be subject to the Social Security tax next year. Once your earnings exceed the wage base, that excess is FICA-free.
Remember, too, that this income level at which part of the payroll tax collection ends applies only to the Social Security portion of the payroll tax. There is no earnings cap for the Medicare portion.
You can read more about the SSA wage base 2026 change, as well as the increase Social Security beneficiaries will get next year, in my post “Social Security taxable wage base goes to $184,500 in 2026.”
Nanny tax changes, too: Earning amounts also come into play when taxpayers hired domestic help. The salaries of these workers could trigger coverage under the Social Security program.
Although it’s popularly known as the nanny tax, the income that prompts these tax payments isn’t limited to salaries for modern-day Mary Poppins. It could go to any person, known officially as a domestic employee, hired to help with the upkeep and running of the employer’s home.
When one of these household workers earns more than a certain amount, that employer must pay their portion of the worker’s Federal Insurance Contributions Act, or FICA, taxes that go toward the federal Social Security and Medicare programs. Remember, FICA taxes require employees and their bosses to equally split payment of these taxes.
The SSA’s annual cost-of-living (COLA) adjustments also apply to the salary amount for domestic workers that triggers FICA coverage each year. For 2026, the income threshold for domestic workers will increase to $3,000. That’s a bump up from the 2025 household worker income trigger of $2,800.
Yeah, I know. Dealing with household staff and associated tax implications is not something that most of us will have to worry about. That seems to be a perennial problem of high-level government appointees. But if you do hire household help, make sure you know the rules and applicable numbers.
Tax inflation preview: You can read more in the previous posts that are part of this year’s 10-part tax inflation series. The table of contents below offers links to the series’ parts that have been posted, as well as a preview of what’s ahead in the 2026 version. It also is a good indicator of why I do it as a series.
- 2026 tax rates and income brackets
- Standard deduction amounts and itemized deduction considerations
- Credits and deductions, including adoption costs and assistance, Lifetime Learning Credit, Earned Income Tax Credit, educators’ expenses, interest on education loans and transportation fringe benefits
- Medical-related tax provisions, including contributions to a flexible spending account (FSA), health savings account (HSA), medical savings account (MSA), and eligible and eligible long-term care premiums
- Capital gains tax income brackets, estate and gift tax limits, kiddie tax, kiddie tax, and nanny tax
- Alternative Minimum Tax exemption amounts and One Big Beautiful Bill Act changes for 2026, along with the Social Security wage base increase amount and other pay-related taxes
- International worker tax issues, including foreign income and housing exclusions
- Retirement (e.g., IRA etc.) and pension plan contribution limits
- Penalties, for both individuals and tax pros, for things such as failure to file a timely 1040 or certain information returns
- Standard mileage deduction rates (This is the final component, since the IRS issues these adjustments and later in the year.)
Again, I know all y’all tax geeks want as much tax information as soon as possible. I get it. So, I really appreciate your patience when comes to my extended presentation of the 2026 tax inflation info.
This post also appeared on my Don’t Mess With Taxes Substack.
