The Alternative Minimum Tax (AMT) has become one of the more controversial tax topics in recent memory. The original intent of the AMT was to ensure that taxpayers who benefit from certain tax advantages pay at least a minimum amount of tax.
Sounds like a noble idea, right? I mean, you wouldn’t like the idea of “some rich guy” not paying his fair share in taxes due to him using a bunch of clever deductions and credits, right? So then why is this an issue that millions of middle class taxpayers have to deal with every year?
Here are a few things that may help your understanding of the AMT, as well as a few temporary changes made for tax year 2009:
- The AMT was created in 1969 in order to target taxpayers who are able to drastically reduce their tax liability through various credits and deductions.
- However, since the AMT is not indexed for inflation, a large number of “middle-income” taxpayers are becoming subject to the AMT. Not indexing for inflation simply means that they still use those 1969 numbers to determine wealth. What was considered “wealthy” 40 years ago, is not by today’s standards; however, due to the AMT, many taxpayers – whom the AMT was not designed for – are paying additional taxes.
- There is an AMT exemption amount that is set by law for each filing status. If your (regular) taxable income plus any adjustments and “preference items” that apply are more than this exemption amount, you may have to pay the AMT:
For tax year 2009, Congress raised the AMT exemption amounts to the following levels:
- $70,950 for a married couple filing a joint return and qualifying widows and widowers;
- $46,700 for singles and heads of household;
- $35,475 for a married person filing separately.
- The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2009.
For more information on taxes click here.
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