Tax Increase Alert-Alternative Minimum Tax $3-5000 Increase

Posted on October 19, 2010

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Of all the tax issues facing Congress when it returns for a lame duck session after the Nov. 2 midterm elections, the annual rite of patching the Alternative Minimum Tax will be the most urgent. 

Unlike the debate over the Bush tax cuts, which will affect taxpayers’ income in 2011, the AMT applies to 2010. And the delay in patching it is already causing problems and raising alarms for large numbers of middle-income taxpayers — as many as 25 million Americans, according to one expert — who could face a huge increase in their tax payments if Congress doesn’t act.

Enacted in 1969, the Alternative Minimum Tax was originally aimed at 155 extremely wealthy taxpayers who had avoided paying federal taxes completely. It was an add-on tax designed to ensure that everyone paid some income tax every year. Since then it has evolved into the primary tax mechanism for taxing high income taxpayers.

Under the original system, taxpayers who earned more than $200,000 —  a very high income 30 years ago — were required to calculate their taxes differently, resulting in a larger tax payment for the wealthy. 

 the $200,000 ceiling is no longer a small fortune, nor is it the sole criteria for triggering the AMT tax. Today a complex formula that looks at the differences between income and deductions determines who will pay. And each year Congress has to act to raise the exemption limits of the tax to prevent it from targeting increasing numbers of less affluent people.

If Congress is unable or unwilling to act on the patch, then “as many as 25 million taxpayers may see their tax liability rise by anywhere from $3,000 to $5,000,” according to Leigh Mutert, of H&R Block, “The primary victims will be middle-class taxpayers.”

In 2008 Congress set the exemption for the AMT at $70,950 for married couples filing jointly, the largest group impacted by the AMT. If it fails to enact a post-election patch, that exemption will revert to $45,000, the original exemption amount, ensnaring millions of taxpayers in a tax hike that would total $70 billion, according to Bill Ahern of the Tax Foundation.

Under the system, high-income taxpayers are required to calculate their tax returns twice. If tax returns completed under the normal procedures meet certain income and deduction criteria, the taxpayer is then required to complete the process again using AMT rules. Whichever tax is higher is the one the taxpayer must pay.

MORE…...foxnews.com/ 

Article-Taxpayers Anxiously Await Annual ‘Patch’ to Alternative Minimum Tax, By Ed Barnes

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