Individual Taxation 4 of 5 (4)

Question 1

Underpayment Penalty for Individuals

Answer 1

A penalty imposed on individual taxpayers who do not prepay a sufficient portion of their tax liability (through estimated payments or withholding) during the year, which results in a tax balance due of $1,000 or more. The penalty does not apply, however, if the taxpayer has paid in the lower of:

• 100% of the prior year’s liability (110% for certain high-income individuals), or
• 90% of the current year’s liability.

Question 2

Alternative Minimum Tax (AMT) for Individuals

Answer 2

Taxes an individual taxpayer may be required to pay, in addition to the regular income tax, when taxable income includes certain items that qualify for preferential tax treatment, or when it has been reduced by certain deductions.

It is the excess of the tentative minimum tax over the regular income tax.

Question 3

Alternative Minimum Tax (AMT) Calculation for Individuals

Answer 3

AMT - Individuals
Regular taxable income
+/− Adjustments & Preferences (PLIERS)
= AMTI before exemption
− Exemption
AMTI
× Tax rate (26%/28%)
= Tentative minimum tax
− Regular tax
= AMT