Patching the Alternative Minimum Tax

By 2010, the Treasury Department expects that 39% of married couples with children will have to pay the alternative minimum tax (AMT).¹ That seems a far cry from when the tax was originally introduced four decades ago as a way to prevent the wealthiest families from using tax loopholes to pay little or no income tax.

The AMT requires a different set of calculations from the regular income tax. For example, it doesn’t allow the standard deduction or personal exemptions. Additionally, miscellaneous itemized deductions are not allowed, and special rules apply to medical expenses, home mortgage interest, and other common deductions.

Because the AMT is not indexed to inflation, it affects more middle-class families each year. For several years, Congress has favored last-minute patches that raise the exemption amount for AMT eligibility, enacting temporary rather than meaningful reform. In 2007, even with the higher exemption amount, 4.2 million taxpayers were on the hook for the AMT.² Without the patch, the figure would have been much higher.

The patch for 2009 raised the exemption amounts to $70,950 for married taxpayers filing jointly and $46,700 for single taxpayers. Congress will have to act again if it intends to spare a significant number of middle-class taxpayers from the levy in 2010.

The future of the AMT is uncertain, yet it is important to consider the possible effects of the AMT on your tax situation. Before you take any specific action, be sure to consult with your tax professional.

1) Kiplinger.com, 2008
2) Tax Policy Center, 2009 (latest figures available)

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

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