Alternative Minimum Tax (AMT)
A parallel federal tax system that ensures high-income taxpayers pay a minimum amount of tax by limiting certain deductions and preferential treatments.
Detailed Explanation
AMT recalculates taxable income using its own rules, adding back items like state and local tax deductions, certain interest, and Incentive Stock Option (ISO) bargain elements. Taxpayers pay the higher of regular tax or AMT. The Tax Cuts and Jobs Act significantly raised the AMT exemption, removing most middle-income taxpayers from AMT exposure, but it remains relevant for high earners with large ISO exercises or significant state-tax deductions.
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Learn about Individual Tax PreparationRelated Terms
Restricted Stock Unit (RSU)
A form of employer equity compensation that delivers shares (or cash equivalent) to an employee upon vesting, taxed as ordinary income at vesting.
Form 1040 (US Individual Income Tax Return)
The annual federal income tax return filed by US citizens and resident aliens to report income, deductions, credits, and tax liability.
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