What is an alternative minimum tax (AMT)?

An alternative minimum tax (AMT) is indeed a parallel tax system designed to ensure that high-income earners pay at least a minimum level of tax. The AMT functions by disallowing certain deductions and credits that are typically available under the regular tax system, which can result in a higher taxable income for individuals with substantial earnings. This system was established to prevent wealthy individuals from exploiting loopholes and deductions that would allow them to significantly reduce their tax liability, ensuring a more equitable tax structure.

The option highlighting that AMT applies to individuals earning more than a specific threshold reflects its primary focus on high-income earners rather than serving the interests of those with lower incomes or corporations. The AMT calculation is primarily based on adjusted gross income plus certain add-backs of tax preferences, which ultimately leads to a minimum tax obligation intended for those benefiting from significant tax advantages. This definition correctly captures the essence and purpose of the AMT in the broader context of tax policy and fairness in the tax system.