The looming (expected) expiration of the Tax Cuts and Jobs Act (TCJA) in 2025 has many taxpayers wondering how different their taxes will look in 2025 and beyond. Will the alternative minimum tax be impacted? Individual or corporate? Let’s explore here.

What is the AMT?

Individual AMT: The individual Alternative Minimum Tax is a mandatory alternative to the standard income tax. It gets triggered when taxpayers make a certain income and eliminates many deductions for those in higher brackets to make sure they pay at least some taxes. Under the individual AMT, income is taxed at either 26% or 28%. Taxpayers are required to pay the difference between their AMT liability and their regular tax liability, if the AMT is higher.

Corporate AMT: Before the Tax Cuts and Jobs Act (TCJA) repealed it, the old corporate AMT worked similarly to the individual AMT, in that corporations had to calculate their taxes under both regular tax rules and AMT rules, with restricted deductions and a different tax rate. The corporation would then pay whichever amount was higher.

The Inflation Reduction Act of 2022 introduced a new version of the Corporate AMT, imposing a 15% minimum tax on the book income of corporations with adjusted financial statement income (AFSI) exceeding $1 billion or more over a three year period.

What is the AMT exemption?

The individual AMT exemption is like a tax "buffer" that helps protect lower- and middle-income taxpayers from having to pay the AMT. If your income is below the AMT exemption amount, you are not subject to the AMT.

What can we expect in 2025?

If December 2017’s Tax Cuts and Jobs Act (TCJA) sunsets at the end of 2025 as scheduled, the individual AMT exemption thresholds are expected to go back to pre TCJA amounts listed above. Approximately 5 million taxpayers were subject to the AMT prior to the TCJA, decreasing to 200,000 in 2018, and the Congressional Budget Office estimates that 7.2 million taxpayers will be subject to the AMT starting in 2026 (if TCJA expires).

What about the corporate AMT?

The Treasury and the IRS issued proposed regulations (89 FR 75062) on the application of the corporate alternative minimum tax, which was enacted as part of the Inflation Reduction Act. The guidance relates to AFSI adjustments relating to taxable year differences, depreciation, net operating losses and other adjustments. For such large corporations, the proposed regulations provide much needed guidance but the analysis of these rules are very complex and will be applied based on the corporation’s particular facts and circumstances.

We will keep you posted on the status of these proposed regulations.