The AMT tax has not been adjusted for inflation in past years. Millions of taxpayers have been hit with the Alternative Minimum Tax over the past few decades, and some shouldn’t have had to pay at all. That’s because as income rose with inflation, more taxpayers edged up into the AMT strike zone, which was originally set to capture only the wealthy among us. Well $70, 000 was a huge amount of annual income twenty years ago but today it’s not as impressive. But since the AMT was never adjusted for inflation, earning relatively less money qualified lots of non-wealthy taxpayers for paying the AMT tax, meant for the wealthy.
Each year Congress would enact a temporary patch, keeping many taxpayers from having to pay the AMT. This started under Bush in 2001, as part of the by now famous Bush-Era Tax Cuts. These annual patches would raise the amount of income that was exempt from the AMT tax. But nothing was ever guaranteed until 2012. Congress was afraid to make the patches permanent because the money the government makes off the un-patched AMT tax is seven times what it is patched. If they really needed money, they could simply not pass a temporary patch for a tax year and make $25 billion extra dollars.
The American Taxpayer Relief Act of 2012
Now that’s all changed. The American Taxpayer Relief Act of 2012 has made a permanent fix for exemption amounts. They will be raised each year according to inflation and fewer Americans will be caught in the web of the AMT tax. The previous method of raising the exemption amounts didn’t necessarily reflect inflation. The just raised the amounts but not always enough.
Still a Ways to Go, According to Some Critics of the AMT Tax
The way the AMT tax works is that is strips away many deductions so the taxpayer ends up with more taxable income. One of the deductions not allowed under the AMT tax system is the state and local tax deduction. Our fifty states vary wildly on how much their residents pay in taxes, and same goes for local governments. Critics of the AMT tax argue that taxpayers who live in states with high taxes or towns with high taxes are unfairly hit by the AMT tax. That’s because when you figure the AMT, you have to pay whichever is higher: the normal income tax amount or the AMT tax amount. Adding back in high state and local taxes will more often push residents of high state tax areas into having to pay the AMT tax.
AMT Tax Exemption Amounts
For 2013 the AMT tax exemption amount for a single taxpayer is $51.9000. Two years before that it was $48,450.