Question
Federal Government > Tax > Alternative Minimum Tax
Reform the Alternative Minimum Tax (AMT) to shield middle-class taxpayers from it
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Background
The Alternative Minimum Tax (AMT) is part of the federal income tax system in the United States. The AMT is imposed under 26 U.S.C. § 55 and disallows many deductions and exemptions allowable in computing ""regular"" tax liability. (Regular tax liability is defined in 26 U.S.C. § 55(c)(1), with reference to 26 U.S.C. § 26(b), and does not include AMT and various other categories of taxes imposed under Chapter 1 of Subtitle A of the Internal Revenue Code.).
The AMT sets a minimum tax rate of either 26% or 28% (depending on the amount of the taxpayer's ""alternative minimum taxable income,"" as adjusted) on some taxpayers so that they cannot use certain types of deductions to lower their tax. By contrast, the rate for a corporation is 20%.
Affected taxpayers are those who have what are known as ""tax preference items"". These include long-term capital gains, accelerated depreciation, certain medical expenses, percentage depletion, certain tax-exempt income, certain credits, personal exemptions, and the standard deduction.
The AMT was introduced by the Tax Reform Act of 1969, and became operative in 1970. It was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time. In recent years, the AMT has been under increased attention.
Because the AMT is not indexed to inflation and recent tax cuts, an increasing number of middle-income taxpayers have been finding themselves subject to this tax.
If not indexed on inflation, 45 million taxpayers will have to pay this tax over the next decade. In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code. The advocate noted that the AMT punishes taxpayers for having children or living in a high-tax state, and that the complexity of the AMT leads to most taxpayers who owe AMT not realizing it until preparing their returns or being notified by the IRS.
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The AMT sets a minimum tax rate of either 26% or 28% (depending on the amount of the taxpayer's ""alternative minimum taxable income,"" as adjusted) on some taxpayers so that they cannot use certain types of deductions to lower their tax. By contrast, the rate for a corporation is 20%.
Affected taxpayers are those who have what are known as ""tax preference items"". These include long-term capital gains, accelerated depreciation, certain medical expenses, percentage depletion, certain tax-exempt income, certain credits, personal exemptions, and the standard deduction.
The AMT was introduced by the Tax Reform Act of 1969, and became operative in 1970. It was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time. In recent years, the AMT has been under increased attention.
Because the AMT is not indexed to inflation and recent tax cuts, an increasing number of middle-income taxpayers have been finding themselves subject to this tax.
If not indexed on inflation, 45 million taxpayers will have to pay this tax over the next decade. In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code. The advocate noted that the AMT punishes taxpayers for having children or living in a high-tax state, and that the complexity of the AMT leads to most taxpayers who owe AMT not realizing it until preparing their returns or being notified by the IRS.
see more on Wikipedia
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