AMT - The Tax We Love to Hate

By: Jim Dossey, MS, MBA, JD -

The Alternative Minimum Tax (AMT) was added in the 1970's to prevent people with very high incomes from using special tax benefits to pay little or no tax. Treasury Secretary Joseph Barr prompted the implementation of the AMT when he disclosed that 155 high-income households, through use of various tax benefits and loopholes, had not paid any federal income tax. Since its implementation, the AMT has become one of the most hated sections of the tax code.

The way the AMT works is that it establishes a tax floor for each taxpayer above a set income level. If the normal income tax calculation is less than the AMT, then the taxpayer pays the AMT instead. The IRS has an online tool to help taxpayers know if they need to calculate the AMT: https://www.irs.gov/businesses

The main problem with the AMT has been that it was not indexed to inflation. In the first year it was added to the code, 1970, only 19,000 paid the AMT. In 2011, approximately 4 million taxpayers were impacted by the AMT. Because the AMT is not indexed to inflation, more and more people are caught within its reach each year. When originally implemented, the AMT collected $700 Million in today's dollars in additional tax revenue. Because the AMT was not indexed to inflation, it collected $102 Billion in 2010.

Since the 1970's, Congress has occasionally raised the AMT income exemption amount to keep taxpayers in the lower income levels from getting hit by the AMT. In 2012, for example, Congress raised the exemption amount for married couples filing jointly from $51,900 to $75,000. In 2013, President Obama signed the American Taxpayer Relief Act of 2012, finally indexing the exemption amount to inflation. In 2013, the AMT exemption amount for married couples filing jointly is $80,800.

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