More on the AMT Patch

In a November 9, 2010 letter to IRS Commissioner Douglas Shulman, bipartisan tax policy leaders have committed themselves to legislation that will allow the personal credits against the alternative minimum tax (AMT) and set the AMT exemption amounts for 2010 at $47,450 for individuals and $72,450 for married taxpayers filing jointly.

What needs to be patched? The AMT is the excess, if any, of the tentative minimum tax for the year over the regular tax for the year. In arriving at the tentative minimum tax, an individual begins with taxable income, modifies it with various adjustments and preferences, and then subtracts an exemption amount (which phases out at higher income levels). The result is alternative minimum taxable income (AMTI), which is subject to an AMT rate of 26% or 28%.

For tax years beginning in 2009, the American Recovery and Reinvestment Act of 2009 increased the AMT exemption amounts. This  increase in the AMT exemption amounts was only a temporary fix. Absent Congressional action, the 2010 AMT exemption amounts for individuals revert to the levels they were at for 2000. Thus, the AMT exemption amounts for tax years beginning in 2010 presently are $33,750 for unmarried individuals; $45,000 for married couples filing jointly and surviving spouses; and $22,500 for married individuals filing separately. Under present law, more than 26 million taxpayers will be subject to higher taxes in 2010 unless legislation is enacted to limit the reach of the AMT.

Promised AMT relief. Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Sander Levin (D-MI), along with Finance Ranking Member Chuck Grassley (R-IA) and Ways and Means Ranking Member Dave Camp (R-MI), wrote to IRS Commissioner Schulman to assure him that Congress was working on legislative AMT relief. They committed themselves to AMT legislation in which, in the aggregate, not one additional taxpayer faces higher taxes in 2010 due to the onerous AMT.  The Congressional leaders stated that they were aware that the scheduled increase in the AMT’s impact was causing concern for many taxpayers and was creating administrative difficulties for IRS as it prepared for the upcoming filing season. The leaders of the Congressional tax-writing committees urged IRS to take all steps necessary to plan for changes that would be made by the AMT relief legislation

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