If you've been paying the traditional income tax for the past several years, you may not have even heard of the Alternative Minimum Tax. In reality, though, this separate tax system affects many Americans each year, including some who didn't know they were even subject to it. What is the Alternative Minimum Tax? Should you be concerned about having to pay it? Is there anything you can do to find out if it applies to your tax return?

What is the Alternative Minimum Tax?

The Alternative Minimum Tax, often abbreviated as AMT, is a separate tax code that applies to some American households. Generally, the tax is used for families or individuals who pay more than a specific amount in taxes each year. For example, if the AMT on your income is higher than the traditional tax on your income, you're probably subject to the AMT.

The AMT system was created several decades ago, but it was originally intended to affect higher-income households only. However, the system became outdated quickly, because the government did not adjust the income limits for inflation. As a result, more and more middle class and lower-middle class families began to be affected by the tax as the years went by. Unfortunately for these taxpayers, the AMT system nearly always results in a higher amount of tax due. This is largely because the AMT disallows many of the common tax deductions, including child tax credit and home mortgage interest.

How to Know If You're Subject to AMT

If you're wondering if the AMT applies to you, you can complete a simple worksheet that comes with the regular Form 1040 instructions. When you follow the tax form to prepare your return, stop at line 45 and complete the worksheet provided to find out if you are subject to the AMT. The good news is that many American taxpayers will now be exempt from the tax because the government has agreed to adjust the AMT limits for inflation. Over time, the system may eventually be relegated to upper-income households once again.

AMT Tax Considerations

If you find out that the AMT applies to you, a good place to start is by hiring a professional tax adviser who can help you navigate this special tax code. You'll be allowed to exempt part of your income from the tax, but this amount is phased out at the higher levels of income. Make sure that you pay attention to your income level so that you can accurately estimate your tax liability for the year.

The Alternative Minimum Tax can be complicated, confusing, and downright frustrating. Getting the assistance of an experienced tax professional can help you know where you stand with the AMT.