is now 
The American Taxpayer Relief Act (ATRA), enacted in January 2013, has a provision that relieves millions of taxpayers from having to pay the Alternative Minimum Tax (AMT) in the 2012 and 2013 tax years.
For years Congress has passed temporary “patches” to address who must pay AMT. Those are now made permanent. Without a patch, the Tax Policy Center reports 30 million more Americans would have had to pay AMT.
Generally, AMT is designed to prevent affluent taxpayers who may enjoy “tax preference items” like large deductions for accelerated depreciation and oil and gas well cost depletion to avoid paying ordinary tax.
AMT imposes an increasing flat
tax rate with an inflation adjusted floor once incomes reach a
certain threshold.
The floor is called an “exemption”. Taxpayers
whose incomes exceed the floor must pay an alternative minimum tax that raises
their tax liability to the regular income tax amount. Because the floor amounts have not been
regularly adjusted to reflect inflation, opponents have argued it unfairly
taxes working Americans.
AMT rates and exemptions vary by filing status as standard federal income taxes do. It may apply to you if your taxable income plus adjustments for certain tax preference items like state and local taxes paid is more than the AMT exemption amount for your filing status.
The new tax law sets a higher permanent exemption for 2012. It also indexed the exemption and other AMT parameters for inflation.
The IRS lists the 2012 AMT exemption amounts for each filing status as:
- $50,600 Single and Head of Household
- $78,750 Married Filing Joint and Qualifying Widow(er)
- $39,375 Married Filing Separately
The new TPC report estimates more than 30 million taxpayers who would have owed AMT for 2012 are no longer facing the levy while 3.4 million taxpayers will pay AMT.
The alternative minimum tax makes tax planning much more difficult, and often taxpayers whose annual incomes have increased are unpleasantly surprised when they learn they owe AMT. In fact, the TPC estimates the number of AMT taxpayers will increase by 35 percent in the next 5 years.
Another ATRA provision limits itemized deductions and reinstates personal exemption phase-outs. That is also expected to increase the number of taxpayers who must pay AMT.
The IRS provides an “assistant” to help you compute the AMT. If you’re uncertain of whether you may owe AMT, contact us at McRuer CPAs and we’ll help you interpret the complicated tax code.
