Alternative Minimum Tax

Filed Under: Income Tax Basics, Tax Advice, AMT
The Alternative Minimum Tax (AMT) was passed in 1969 to ensure that upper-income taxpayers paid at least some income taxes. Up to that point, taxpayers skilled at finding enough in itemized deductions, income exclusions and tax credits would sometimes manage to avoid paying any income taxes.

The AMT is not without its critics, however. Most notably, critics argue that income limits subject to the AMT have never been indexed to inflation. (In comparison, the IRS regularly adjusts the range of incomes that fall within regular income tax brackets to adjust for inflation.)

This lack of indexing, combined with the growth in incomes over the past 30 years, has resulted in many more taxpayers paying the AMT. Without the "AMT patch" passed by Congress in December 2007, about 23.4 million Americans would have paid the AMT in 2007, according to the Tax Policy Center. With the patch, the number is still around four million taxpayers. these numbers are expected to grow higher. In the 2004 Annual Report to Congress, the Taxpayer Advocate called the AMT the most serious problem encountered by taxpayers and projected that 34.8 million individual taxpayers will have to pay the AMT in 2010.

When you complete an individual income tax return such as IRS Form 1040), you will have to complete a worksheet to determine whether you may owe the Alternative Minimum Tax. If you do owe, you must complete Form 6251.

The tax rate for the AMT is 26% of the first $175,000 of ordinary income that exceeds a certain exempt amount of income, shown below. The income that exceeds the exemption amount is called Alternative Minimum Tax Income. The tax rate increases to 28% for higher incomes. (For married taxpayers that file a separate return, the cutoff amount of income between the tax rates is $87,500.)

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The exemption for married taxpayers filing jointly and heads of household is $45,000. For single taxpayers and heads of household, the exemption is $33,750. For married taxpayers filing a separate return, the exemption is $22,500. These numbers are not indexed for inflation, but they have been increased every year since 2000, frequently as a last-minute "AMT patch." For example, the 2007 patch increased the married filing jointly exemption to $66,250 and single and head of household exemption to $44,350.

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 liberalizes the use of the child tax credit and AMT by allowing AMT taxpayers to exclude the amount of the tax credit from their income.

For additional information on the Alternative Minimum Tax, see Tax Topic 556 at the IRS Web site (www.irs.gov).

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27 comments

Mwjjcreative 10:07:03 AM May 05 2008

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taxes are a crock of crap,people don't know that taxes are a fake.

patdunn 10:28:11 PM Apr 14 2008

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MichaelCR,
You claimed your children as dependents and they were not 17 years old or younger as of Dec 31, 2007.
No, they will not receive a tax rebate. You will not receive any extra from them on your tax rebate either.
However your children could get the rebate on next years income tax if they are not your dependents and file their income tax's.

DocZima 10:47:41 AM Apr 14 2008

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MichaelCR, every year, more and more people are sadly learning about the AMT. I did 2 years ago. Yes, this travesty must be eliminated, and the only way we can do that, is unite and demand action. Youe vote counts...which candidate has already stated they will abolish the AMT? Read and learn and maybe we will get the money WE earned, not the Iraqi's.

DocZima 10:44:03 AM Apr 14 2008

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The AMT has failed miserably to halt tax deductions from the wealthy, but it is has not failed to hurt those individuals who are NOT considered wealthy The AMT is not working as it was intended and must be voted out by Congress.. Period. This country is in enought economic peril, to now deprive people who need every dollar, a tax that the IRS has neglected to adjust for inflation, and so now more and more lower income people are losing legitimate deductions. I used to trust our government, I believed they had our best interests at heart. I was naive....they don't.

shclary 02:14:20 PM Apr 09 2008

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YOU THINK TAXES ARE HIGH NOW WAIT TILL WE GET HELLORAY OR OBUMU

LANDSELL 08:57:41 AM Apr 05 2008

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What really upsets me is the people who don't pay any income taxes and get several hundred dollars income tax rebate. They call it low income tax credit or something. How do they manage to do it?

TROCTOOLS 04:43:02 PM Feb 29 2008

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Rezendezen.
Get real. You and the guy who makes a million. You both get the same services from the goverment. But he pays 100k and you pay 1k. he just picked up the slack for 99 of your buddys

Nbperenns 11:47:39 AM Feb 27 2008

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Of course renters pay school taxes, but indirectly. The owner (lessor) of the rental units pays school tax, and of course his rental structure take account of all of his costs, including school taxes. So if you rent, you are paying school taxes, albeit in an indirect way.

Kmaff1 08:59:59 AM Feb 14 2008

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Remember , Renters dont pay school taxes , only homeowners do. But children of renters go to the same schools.Imagine how much lower your property tax bill would be if every family paid thier fair share of school tax.THIS IS REALLY UNFAIR!!
School tax should be collected from income just like federal and state taxes are.

MichaelCR 10:32:21 PM Feb 13 2008

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I have two children, daughter 26 and a son 21. My husband and I claimed both of them because they made less than $3400. Will we receive $600 in refund for them? Will they receive a refund?

My husband and I are not entitled to a refund because we made to much money. Everyone should get a refund. We have had financial problems because of our children. We need help

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