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Tax Law Research : Federal and Ohio: Alternative Minimum Tax

Introduction

The 2017 tax reform act eliminated the corporate AMT.  The Tax Cuts and Jobs Act kept the AMT for individuals, but raised the exemption and phase-out levels for the tax years between 2018 and 2025. It includes an automatic cost of living adjustment

A variety of exclusions, deductions, and credits are available to higher income individuals, which often allow them to reduce the amount of tax that they are required to pay on the income they earn. To ensure that these individuals pay at least some tax on their income, Sec. 55 imposes an alternative minimum tax (AMT), which requires many taxpayers to add back some of these deductions and credits and pay tax on this reconfigured amount.

The calculation of a person's AMT is parallel to its regular tax calculation. A person must calculate tax under both systems and determine its tentative minimum tax. Then the tentative minimum tax and the regular tax are compared. If the tentative minimum tax amount exceeds its regular tax amount, the excess is the alternative minimum tax, which s/he pays in addition to his or hers regular tax.

The Inflation Reduction Act of 2022 added back in a 15% corporate alternative minimum tax. This new corporate AMT applies only if the 15% rate applied to a designated corporation’s financial statement income exceeding $1 billion with adjustments is greater than the corporation’s regular US Federal income tax liability plus any base erosion anti-abuse tax (BEAT).

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