One of the hardest things to do is try to explain Alternative Minimum Tax (“AMT”) to a taxpayer. This has become more difficult with Congress not setting the exemption amount (commonly referred to as the AMT Patch) until the last minute.
Retroactively effective for tax years beginning after 2011, the 2012 Taxpayer Relief Act permanently increases the AMT exemption amounts.
As a result, the AMT exemption amounts for tax years beginning after 2011 are as follows:
- Married individuals filing jointly and surviving spouses: $78,750, less 25% of AMTI exceeding $150,000 (zero exemption when AMTI is $465,000);
- Unmarried individuals: $50,600, less 25% of AMTI exceeding $112,500 (zero exemption when AMTI is $314,900); and
- Married individuals filing separately: $39,375, less 25% of AMTI exceeding $75,000 (zero exemption when AMTI is $232,500). But AMTI is increased by the lesser of $39,375 or 25% of the excess of AMTI (without the exemption reduction) over $232,500.
In addition, for tax years beginning after 2012, the 2012 Taxpayer Relief Act indexes these exemption amounts for inflation.
For tax years beginning after 2011, for a child subject to the kiddie tax (i.e., certain children with unearned income over $1,900 for 2012, $2,000 for 2013), the AMT exemption amount can’t exceed the sum of the child’s earned income plus an annually adjusted amount ($6,950 for 2012, $7,150 for 2013). In addition, the kiddie tax AMT exemption can’t be more than the child’s regular AMT exemption (i.e., the unmarried individual’s exemption amount, see above). Thus, for example, under the 2012 Taxpayer Relief Act, a child subject to the kiddie tax is entitled to a maximum AMT exemption for 2013 of $50,600, but only if he has earned income of $43,450 ($7,150 + $43,450 = $50,600) or more before taking the phaseout for unmarried individuals into account.
If you have any questions regarding Alternative Minimum Tax or any other provisions of new law, please do not hesitate to contact us.