Sunday, February 15, 2009

AMT Exemption Increased For One Year

For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:

  • $69,950 for a married couple filing a joint return and qualifying widows and widowers, up from $66,250 in 2007
  • $34,975 for a married person filing separately, up from $33,125 and
  • $46,200 for singles and heads of household, up from $44,350

Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT Calculator provide more information.

The AMT was enacted in 1969 to ensure that the richest Americans were not able to avoid paying taxes. However, because the AMT is not indexed for inflation many middle class taxpayers wind up paying this tax. According to the Tax Policy Center, 46% of households with incomes between $75,000 and $100,000 will be subject to the AMT tax by 2010.

Because the AMT disallows dependent exemptions and imposes significant marriage penalties, it hits some taxpayers harder than others. Families with children are more likely to be subject to the AMT than those without children: in 2010, 44 percent of those with two children will face the AMT compared with only 17 percent of those without children. Married couples will be more than 12 times as likely as singles to face the AMT in 2010. AMT participation for married families with two or more children and AGI between $75,000 and $100,000 will increase dramatically from less than 0.5 percent in 2007 to 87 percent in 2010

Since the AMT disallows the state and local tax deduction, residents in high-tax states are more likely to pay the tax. In 2007, families in high-tax states were almost three times more likely to face the AMT than those in low-tax states (5.0 vs. 1.8 percent). As more taxpayers are ensnared by the AMT, that differential will fall to about one-fourth in 2010 (28.8 vs. 21.5 percent).

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