Expat Taxes: Understanding the Alternative Minimum Tax

US expat taxes can be complicated with the deductions, credits and exclusions available to you. Fortunately, these things can often eliminate your tax liability with the IRS. Unfortunately, though, because so many people were able to eliminate their US tax liability, the IRS introduced the Alternative Minimum Tax (AMT) in 1969. The AMT is an alternate form of taxation for wealthy individuals, and affects a growing number of US expats.

What Exactly Does the AMT Entail?

As a US taxpayer, you’ll either pay the regular income tax or the AMT – whichever is greater. The AMT is calculated as a flat rate on total income. You may not include itemized deductions before your AMT is calculated, and other deductions and credits are either limited or not allowed in the calculation.

There are special exemptions from total income in your AMT calculation, which are adjusted for inflation when deemed necessary by Congress and the IRS. The most recent AMT exemptions for the 2016 tax year are:

  • Married Filing Jointly – $83,800
  • Married Filing Separately – $41,900
  • Single or Head of Household – $53,900

You can also take an exemption for your dependents, which is currently $4,050.

It’s important to note, though, that AMT exemptions begin to be phased out once you pass a certain income threshold. If you’re filing single or head of household, the exemption phases out starting at $119,700. If you are married filing jointly, it phases out starting at $159,700. And lastly, if you’re married filing separately, it phases out at $79,450.

Once you’ve taken the exclusions that apply to you from your adjusted gross income, you’ll be able to determine your AMT liability. The rates are based on your filing status and tiered based on your income. Once you pass the certain threshold, you’re taxed at the high tax rate, which are as follows:

  • Single or Married Filing Jointly – From $0 – $186,299 (26%)
  • Single or Married Filing Jointly – Above $186,300 (28%)
  • Married Filing Separately – From $0 – $93,149 (26%)
  • Married Filing Separately – Above $93,150 (28%)

Clearly, calculating the AMT is not an easy feat! Luckily, the IRS provides an Alternative Minimum Tax Assistant to help you determine if you should pay the AMT, and if so, how much you will owe.

What Do I Need to Know About the AMT as an Expat?

Since expats typically do receive quite a few credits and deductions in order to eliminate dual taxation, many expats abroad who are considered wealthy will be subject to the AMT. Talking to an expat tax professional or using the AMT Assistant tool mentioned above are very advisable in determining whether you must pay the AMT.

If you are required to pay the AMT, you should know that you cannot apply the Foreign Earned Income Exclusion (FEIE) or the Foreign Housing Deduction to your adjusted gross income. You may be able to apply the Foreign Tax Credit (FTC), though, but it will be a different calculation than the dollar-for-dollar credit you use with your regular expat taxes.

Unfortunately, it seems as though the AMT is affecting middle class expats (and taxpayers in general) more than ever before, because the IRS hasn’t adjusted the income levels for inflation.

How Do I Report the AMT?

If you determine you must pay the AMT on your US expat taxes, you must fill out Form 6521 – Alternative Minimum Tax – Individuals and attach it to your Form 1040. This form will help you determine specifically how much AMT you owe.

For individuals who have paid the AMT in previous years, you may be able to use a minimum tax credit against your taxes in future years. To do this, you’ll need to attach Form 8801 – Credit for Prior Year Minimum Tax – Individuals, Estates and Trusts. This may benefit you greatly, because if you paid a substantially higher tax one year, you may be able to claim a credit against your taxes for years to come.

Still Have Questions About the Alternative Minimum Tax?

Greenback is here for you! We can provide expat-expert tax advice and help you with your US expat taxes or AMT to make the process hassle-free for you! Get started with us today.

Free Guide: 25 Things Every Expat Needs to Know About Taxes

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