What Alternative Minimum Tax Means for New York High Earners in 2026

The Alternative Minimum Tax is a separate, parallel federal income tax system that runs alongside the regular system. For many high earners in New York, it creates a choice that is no choice: pay the higher of the two tax calculations. Starting in 2026, a structural change makes this exposure sharper. The law that raised the State and Local Tax deduction cap also doubled how quickly the AMT exemption disappears for higher earners, pulling more of them into the calculation.

Understanding when AMT applies matters most in New York, where state and city income taxes, property taxes, and other state and local levies can exceed $20,000 per year for high earners. Under AMT rules, none of these deductions count.

How the Alternative Minimum Tax Works

The AMT is a second way to calculate your federal income tax. Each year, when you prepare your tax return, you run two parallel calculations: one using the regular tax system, and one using the AMT system. You then pay whichever results in the higher tax bill.

To calculate AMT, the IRS starts with your regular taxable income and adds back certain deductions and preferences that the regular system allowed—most notably, state and local tax deductions. The result is called Alternative Minimum Taxable Income, or AMTI. You subtract an exemption from this figure, then apply the AMT tax rates: 26% on the first $244,500 of taxable excess, and 28% on anything above that.

The exemption amounts are substantial: $140,200 for married couples filing jointly in 2026, and $90,100 for single filers. But these exemptions phase out as income rises—and that phase-out is where the 2026 change becomes significant.

The 2026 Change: A Doubled Phase-Out Rate

The One Big Beautiful Bill Act, passed at the end of 2025, made one consequential structural change to AMT: the exemption phase-out rate doubled from 25% to 50%, effective for tax year 2026. This means that for every dollar of AMTI above the phase-out threshold, the exemption shrinks by 50 cents instead of 25 cents.

For a married couple filing jointly, the exemption phase-out begins at $1 million of AMTI. In 2025, it was fully phased out at approximately $1.8 million of AMTI. In 2026, it is now fully phased out at approximately $1.28 million of AMTI. That is a difference of $520,000 of income over which the exemption is available.

For single filers, the phase-out begins at $500,000 of AMTI and is now fully phased out at $680,200, compared to approximately $860,400 the year before. The practical effect is sharper: the higher the income, the less of the exemption a taxpayer can use, and the more income gets taxed at the 26% and 28% AMT rates.

Why New York Residents Face This Disproportionately

The AMT system disallows one critical deduction: state and local taxes, also known as SALT. Under regular income tax rules, New York residents can deduct state income taxes, city income taxes, and property taxes from their federal income (subject to a $40,000 cap in 2026). Under AMT rules, none of these deductions count.

This creates a mismatch for high earners in high-tax states. A Manhattan resident earning $2 million per year might pay $30,000 to $50,000 or more in state and local taxes. In the regular tax system, that deduction reduces taxable income. In the AMT system, it does not. The result is that more of the income gets taxed at the 26% and 28% AMT rates.

The New York City Comptroller's office noted that high-income residents face a complex landscape: while lower-income earners benefit from the expanded SALT cap, those earning more than $600,000 see the benefits phase out entirely. For those residents, the AMT represents an additional tax consideration that other states' residents may not face to the same degree.

Who Likely Owes AMT, and When

AMT exposure affects a smaller slice of the population than it did before 2025, but the 2026 change affects more people than 2025 did. Married couples with combined income above $1.28 million need to calculate AMT. Single filers above $680,200 should calculate it. However, AMT exposure can occur at lower income levels for specific reasons: the exercise of incentive stock options, significant capital gains, or large deductions in specific categories.

For a typical high-earning Manhattan couple—both professionals earning $400,000 each, with a home and property taxes above $20,000 per year—AMT is worth calculating. The combined SALT typically exceeds what the regular tax system permits after the cap, and the combined income often puts the couple into the AMT exposure zone.

The exact income at which AMT triggers varies case by case, but tax advisers suggest that households with MAGI above $200,000 have a material chance of owing AMT, particularly if they have substantial SALT or other preference items.

Calculating and Handling AMT Exposure

The calculation of AMT is complex and requires tax-return preparation software or a tax professional. Form 6251, the AMT calculation form, walks through the process step by step: starting taxable income, adding back preferences, subtracting the exemption, calculating AMT, then comparing to regular tax. The tax software or professional compares the two amounts and reports whichever is higher as the tax owed.

Once a taxpayer has paid AMT, there is a rule called the Minimum Tax Credit that allows some of that tax to be carried forward and used in future years if the taxpayer's regular tax exceeds the AMT. However, this credit is slow-moving and offers only partial relief. For many high earners, particularly those in high-tax states, the better approach is tax planning: considering the timing of income recognition, exploring business structure changes like pass-through entity taxation elections, or reviewing whether charitable giving or other strategies might reduce preference items.