What is the purpose of the alternative minimum tax (AMT)?

The purpose of the alternative minimum tax (AMT) is to ensure that taxpayers with higher incomes pay a minimum amount of tax, regardless of the deductions and credits they may be eligible for under the regular tax system. The AMT is designed to prevent high-income individuals and corporations from using loopholes, deductions, and credits to excessively reduce their tax liabilities. By imposing a minimum tax, the system aims to promote fairness in the tax structure, ensuring that those who can afford to pay more do so.

Unlike the regular tax system, which allows various deductions such as those for mortgage interest or state taxes, the AMT adds back certain preferences and deductions to income to determine an alternative taxable income. This essentially serves to set a floor for the amount of tax liability that higher-income earners must meet, regardless of their use of deductions.

This structure of the AMT reflects an effort to maintain a progressive tax system where those with a greater ability to pay do contribute a fair share of their income, thereby upholding equity within the overall taxation framework.