Alternative Minimum Tax (AMT)

A parallel tax calculation that limits how many deductions high earners can use to reduce their tax bill.

The Alternative Minimum Tax (AMT) recalculates a taxpayer's liability under a separate set of rules that disallow many common deductions, then requires payment of whichever amount, regular tax or AMT, is higher. It was originally designed to ensure wealthy taxpayers couldn't use deductions to avoid paying tax entirely, though for decades it was not indexed to inflation, which quietly pulled more middle-income households into its reach until Congress made the exemption permanent and indexed it in 2013.

His stock option exercise triggered the Alternative Minimum Tax (AMT), leaving him with a bill his regular tax calculation hadn't predicted.