The Alternate Minimum Tax (AMT) was created to ensure anyone who benefits from certain tax breaks pays at least a minimum amount of tax. The AMT provides an alternative set of rules for calculating your income tax. In general, these rules determine the minimum amount of tax that someone with your income should pay. If your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.
Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers continue to become subject to the AMT. With the passage of the 2010 Tax Relief Act the Alternative Minimum Tax exemption levels were increased for 2010 and 2011. In addition, the new law allows taxpayers to offset their AMT liability by the full amount of their nonrefundable personal tax credits. The new exemption amounts for 2011 are $48,450 for single individuals, $74,450 for married couples and surviving spouses, and $37, 225 for married individuals filing separate.