But in recent years, the AMT has started snaring more middle-income taxpayers. The latest Internal Revenue Service figures showed 828,000 taxpayers paid the AMT in 1998-up 25 percent from the year before. More people paying AMT Unless Congress adjusts how the AMT is calculated, extends current AMT tax credits or eliminates the tax as some have proposed, 1.3 million taxpayers in 2000 and 17 million taxpayers in 2010 will pay additional tax under AMT, according to the latest Treasury Department estimates. Taxpayers most likely to trigger the AMT are those taking large deductions in relation to their income, people who have high state or local taxes, taxpayers who have high employee business expense deductions, and people exercising qualified incentive stock options. How it works First, let's look briefly at how the AMT works.
Taxpayers first calculate their regular income tax.
One of the biggest triggers to AMT these days occurs when taxpayers exercise their qualified incentive stock options. Under regular income taxes, you don't owe any taxes on the spread between the market price and the exercise price until you sell the shares. However, under AMT that spread is treated as income. After the adjustments and preference items are added back, you basically get to take a single allowable exemption. If the resulting tax is higher than what you calculated on your regular income tax, you pay the higher AMT amount.