The Alternative Minimum Tax (AMT) was introduced into the tax code in 1969 with the intentions of ensuring that taxpayers who earned a significant income paid some level of taxes even after taking advantage of tax benefits. The AMT is calculated separately for people who earn above a given minimum income as stipulated by law. If the calculated AMT exceeds the taxes calculated regularly, the taxpayer gets to pay the AMT. Though the rate for the tax is low at 28% as compared to the regular tax rate of 35%, it affects a wider range of incomes that may be excluded from the regular tax system.
Increasing Number of Taxpayers Paying ATM
According to statistics from the IRS, only 1% of taxpayers were affected by the alternative tax in 1997. That amount went up to 2.8% in 2008. Analysts project that if Congress does not repeal the Alternative Minimum Tax law, the number of taxpayers who will pay the alternative tax by 2012 will be 20%. The main reasons as to why the number of taxpayers being affected by the alternative tax keeps increasing is mainly because unlike the regular tax rates, AMT is not tied to inflation. The amounts for the caps remain the same and therefore, as incomes increase, more people get into the bracket for the alternative minimum tax. Doug Shulman, the IRS Commissioner pointed out this issue to Congress early 2010 in a bid to have congress review the tax alternative minimum tax process. Congress responded by making adjustments to the tax for 2 years to 2012. However, there is still no long term address to the increasing number of taxpayers who are being affected by the AMT. However, hopefully, Congress will address the issue by the 2012 deadline to provide a more permanent approach to address the AMT issues.
Process of Checking and Paying AMT
Those whose income threshold exceeds the amount defined by the tax law for the AMT will need to calculate the AMT and check if the regular tax plus adjustments exceeds the AMT exemption amount. The taxpayer can use the “AMT Assistant for Individuals” application found on the IRS website to check if they owe alternative taxes. If they do, they will need to fill out the Form 6251, Alternative Minimum Tax – Individuals Form and pay the due taxes.
However, they may be some relief for taxpayers who find that they are not liable to pay the alternative tax but paid AMT in previous years. These taxpayers may be eligible for a special Minimum Tax Credit that can be offset against their due taxes.