Often described as a "parallel" tax system, it was originally designed to prevent wealthy individuals from avoiding most or all federal taxes by taking an inordinate number of exemptions. Increasingly, however, it is beginning to hit middle-income Americans.

The AMT system ensures everybody pays their fair share to Uncle Sam by eliminating many of the deductions and personal exemptions taxpayers are entitled to under the regular tax system. Among the tax breaks disallowed under AMT are deductions for state income and property tax.

If you're required to calculate the tax you owe using both the standard and AMT formulas, you must pay the higher amount.

The Tax Relief Act of 2001 increased the amount of income that is exempt from AMT for the years 2001 through 2004. The exemption amounts are: $49,000 if you are married filing jointly or are a qualifying widow or widower; $35,750 if you're single or a head of household; and $24,500 if you're married filing separately. (If you have a very high salary -six figures or more, generally speaking -- you may not qualify for the full AMT exemption.)

That doesn't necessarily mean if you're single and report taxable income of $50,750, that $15,000 will be subject to AMT. "It all depends on what you've taken as deductions," says Cindy Hockenberry of the National Association of Tax Practitioners. "If the deductions you've taken are allowed for regular tax and AMT purposes, then you won't be subject to AMT." Plus, if you're already paying a tax rate equal to or higher than the highest AMT rate (28 percent), then you won't be subject to AMT. "If you're not itemizing deductions, chances are you won't be subject to AMT because you're already paying tax at the highest rate anyway," Hockenberry says.

However, "the AMT continues to reach further and further down the economic ladder," says Blanche Lark Christerson, director of the Wealth Planning Strategies Group at Deutsche Bank Private Banking.

Here's why: First, the AMT exemptions have not been indexed for inflation, so they have not kept pace with today's salaries. Plus, the Tax Relief Act of 2001 lowered marginal tax rates under the regular tax system but not the AMT rates. As such, more people will find they owe more under the AMT system than they would under the regular tax system.

Middle-income taxpayers most vulnerable to AMT are those with large families who normally take several family-related deductions and exemptions; those who pay a great deal in state income and property taxes; and those who plan to exercise incentive stock options (ISOs) and hold the shares they buy for more than a year. (The difference between the price they pay for company stock and the fair market value is considered income subject to AMT. For more on ISOs and AMT, click here.)

If you or your accountant thinks you may be subject to AMT, fill out the worksheet associated with Line 41 on Form 1040. If you determine that you must calculate AMT on your return, fill out IRS Form 6251.