U.S. expats often think that once they calculate their taxable income under the regular tax system, their tax bill is final. But many are surprised to discover an extra layer of computation called the alternative minimum tax (AMT). This minimum tax system was designed to ensure that higher-income taxpayers do not avoid paying federal income taxes by using too many tax preferences or itemized deductions.
Below we explain what the alternative minimum tax is, how it works, and what expats should know when filing their U.S. tax return.
Key Takeaways for U.S. Expats
- The alternative minimum tax is a parallel tax system designed to limit the use of tax preferences.
- You calculate it using Form 6251, comparing your tentative minimum tax to your regular tax.
- The AMT exemption amount shields part of your income, but it phases out at higher income levels.
- U.S. expats should pay attention to AMT foreign tax credit limits, incentive stock options, and state and local taxes.
- If your tentative minimum tax exceeds your regular tax, you must pay AMT with your return.
What is the Alternative Minimum Tax?
The alternative minimum tax (AMT) is a parallel tax system created by the IRS. It requires certain taxpayers to calculate their taxes twice: once under the regular tax rules and once under AMT rules. If your tentative minimum tax is higher than your regular tax liability, you must pay the difference as alternative minimum tax AMT.
The AMT disallows certain deductions and adds back tax preferences, meaning some tax breaks allowed under the regular system increase your alternative minimum taxable income (AMTI). For U.S. expats, this can come as a surprise, especially if they claim significant foreign tax credits or have incentive stock options.
When do I need to calculate the AMT?
You only need to calculate the alternative minimum tax if your income is high enough that it exceeds the AMT exemption amount, or if you have specific items that trigger AMT, such as large capital gains or exercising incentive stock options. For 2024, the exemption amounts are $85,700 for single filers, $133,300 for married filing jointly, and $66,650 for married filing separately.
If your income is below these exemption amounts, you do not need to make the AMT calculation and you don’t need to worry about AMT at all. If your income is above the exemption or you hold tax items that fall under AMT rules, you are required to run the Form 6251 calculation to see if your tentative minimum tax is higher than your regular tax. Only in that case would you owe AMT.
How do I calculate my alternative minimum tax?
You calculate AMT using Form 6251, in this order:
- Start with regular taxable income
Take the taxable income figure from your Form 1040. - Make AMT adjustments
Add back deductions and credits not allowed under AMT rules, such as:- State and local taxes (including property taxes)
- Certain itemized deductions
- Private activity tax-exempt interest
- Adjustments for depreciation or incentive stock options
- Add AMT preference items
Include specific tax preferences like intangible drilling costs, development costs, or mining costs. - Calculate Alternative Minimum Taxable Income (AMTI)
Your adjusted income after steps 2 and 3. - Subtract the AMT exemption amount
Use the correct exemption for your filing status (e.g., $85,700 for single in 2024, $133,300 for married filing jointly). - Apply AMT tax rates
- 26% on AMTI up to $232,600 (or $116,300 if married filing separately).
- 28% on any AMTI above that.
- Compute your Tentative Minimum Tax
This is the tax due under AMT rules before credits. - Compare with your regular tax liability
- If your tentative minimum tax is less than or equal to your regular tax → no AMT due.
- If your tentative minimum tax exceeds your regular tax → the difference is your AMT liability.
What counts as Alternative Minimum Taxable Income?
Alternative minimum taxable income is the figure used to compute AMT. It includes:
- Regular taxable income.
- Add-backs for state and local taxes, local tax deduction, and certain deductions disallowed under AMT.
- Adjustments for incentive stock options, amt depreciation, and intangible drilling costs.
- Income from tax exempt bonds if they are private activity bonds.
This broad definition means that even ordinary income tax calculations can be reshaped under AMT rules.
What is the AMT exemption and exemption amounts?
The IRS provides an amt exemption to shield a portion of your income from AMT. For the 2024 tax year, the IRS sets concrete AMT exemption amounts as follows:
- Single or Head of Household: $85,700
- Married Filing Jointly (or Qualifying Surviving Spouse): $133,300
- Married Filing Separately: $66,650
However, there is an exemption phaseout for wealthy taxpayers. Once your adjusted gross income exceeds the amt threshold, the exemption begins to decrease. The exemption begins to phase out:
- Single or Head of Household: Phase-out begins at $609,350
- Married Filing Jointly: Phase-out begins at $1,218,700
- Married Filing Separately: Phase-out begins at $609,350
What are AMT tax rates?
The alternative minimum tax uses two flat rates:
- 26% on the first $232,600 of alternative minimum taxable income (AMTI) above the exemption ($116,300 if married filing separately)
- 28% on any AMTI above that threshold
These rates apply after you subtract your AMT exemption amount and calculate your taxable base under AMT rules.
How do foreign tax credits and AMT interact for expats?
Under the regular tax system, U.S. expats can usually offset their U.S. tax liability with a foreign tax credit (FTC) for income taxes paid abroad. But under the alternative minimum tax, the IRS requires a separate calculation using AMTI instead of regular taxable income. This often reduces the amount of FTC you can claim — known as the AMT foreign tax credit. As a result, even if your foreign taxes fully offset your regular U.S. tax, the limited AMT credit may leave you owing alternative minimum tax in the United States.
What forms are used for AMT?
- Form 6251 – where you do the AMT calculation.
- Form 1040 – your main return where you report the final tax liability including AMT.
- Form 8801 – used to claim the minimum tax credit in future years if you paid AMT in a prior year.
Expats should note that AMT applies on a tax year basis just like regular U.S. income taxes.
When do taxpayers pay AMT and when is it due?
The alternative minimum tax is paid at the same time as your regular U.S. income tax. Payment is due by April 15, even if you are a U.S. expat. As an American living abroad, you receive an automatic two-month filing extension to June 15 to submit your tax return, but interest starts accruing after April 15 if you have not paid your AMT or other taxes owed. If your tentative minimum tax is higher than your regular tax, the difference is your AMT liability, and it must be included with your April 15 payment.
What strategies can help minimize AMT liability?
While you cannot fully avoid AMT if triggered, strategies may help reduce it:
- Time income and deductions – spread capital gains or ordinary income tax items across tax years.
- Manage incentive stock options – exercise carefully to avoid pushing AMTI too high.
- Limit state and local taxes deductions that won’t help under AMT.
- Use business credits where allowed.
- Keep track of tax preferences that inflate AMTI.
Professional planning can ensure you maximize tax benefits while minimizing your AMT liability.
Why does the AMT exist?
The AMT was introduced in the 1960s after reports that wealthy taxpayers were using tax loopholes to avoid paying any income taxes. The goal was to create a parallel tax system ensuring that individual taxpayers and high income households always pay at least some minimum tax.
While the tax policy center and other analysts have noted flaws in the system, it remains part of the tax code today.
