|
In 1969, Congress realized that some people with a high gross
income had a lot of deductions and therefore paid much less in tax than lower-income people who had fewer deductions. They
came up with the Alternative Minimum Tax (AMT) with the intent of making the tax system fairer.
The AMT has since evolved into a tax system that is parallel to our regular income tax system, expanding the amount of
your income that can be taxed, adding items that were tax-free under the regular tax system, and disallowing many deductions.
AMT Today
Today, the Alternative Minimum Tax is no longer just for high-income individuals.
In 1987, one year after the last major overhaul of the Alternative Minimum Tax system, only one tenth of one percent (0.01%)
of all returns had to pay the Alternative Minimum Tax. Now, many middle income Americans are paying the Alternative Minimum
Tax or having their tax credits limited by its hidden effects.
AMT in the Future
The Treasury Department expects that more and more people will be paying the
AMT over the next few years.
|
|
Income
|
|
Year
|
|
Year
|
|
Year
|
|
|
|
|
|
2000
|
|
2005
|
|
2010
|
|
|
|
$75,000-$100,000
|
|
2.3%
|
|
14.7%
|
|
29.3%
|
|
|
|
$100,000-$200,000
|
|
5.7%
|
|
16.1%
|
|
35.6%
|
|
|
|
$200,000-$500,000
|
|
18.8%
|
|
34.0%
|
|
64.0%
|
|
|
In fact, in 2010, the number of married couples with children paying AMT in all
income brackets is projected to be 39 percent. More people will be subject to the AMT in the future largely because the AMT
exemption amounts have not been indexed for inflation.
Regular tax brackets and regular tax personal exemptions are indexed for inflation each year to prevent bracket creep
(an automatic upward shift in the marginal income tax bracket through inflation). More and more people will be subject to
the AMT, not because they are making more money in real dollars, but through the effects of the cost of living adjustments
in their wage income.
When you're subject to the AMT, you lose a lot of previously available deductions and credits, including these deductions:
| • |
Home equity mortgage interest |
| • |
State and local income taxes |
| • |
Real estate taxes |
| • |
Personal exemptions |
|
