If you are confused about the Alternative Minimum tax, you are not alone. The Alternative Minimum Tax, also known as AMT, is a tax imposed by the government that has been enacted to help make sure that any tax payer who sees a benefit from certain tax advantages is not able to walk away owing the government little or no tax liability. The AMT was first put into place as a means to target high wage earners who were claiming numerous deductions to greatly alleviate and even at times eliminate their tax burden. The rules set forth by the AMT identify tax payers in certain tax brackets who may have to pay the Alternative Minimum Tax instead of what they would have paid if they had filed a regular tax return.
AMT was first introduced in 1969 and was meant to target high income taxpayers who were able to reduce their income tax owed by huge amounts with tax credits and deductions that they were entitled to. Many of these taxpayers owed little or nothing in income tax after their credits and deductions. The AMT now required these taxpayers to pay a minimum amount regardless of what their regular tax liability would be.
The Alternative Minimum Tax does not have a provision built into it to compensate for inflation. This has caused the tax to trickle down and it is now impacting an increasing amount of working middle class families. Congress has at times, throughout the years, raised the minimum exemption amounts, which have helped some.
Taxpayers are subject to the Alternative Minimum tax when they find that their adjusted income allows for a lower tax bill than the alternative minimum tax for their income level. Depending on how you file, there are certain minimums for when the Alternative Minimum Tax will apply to you. Once you have exceeded the exemption amount, the AMT is the amount you will need to pay or your regular tax, depending on which figure is higher.
Congress did raise the AMT exemption total amounts for the 2010 tax year, which will certainly alleviate the burden for many taxpayers who otherwise would have been stuck with paying the Alternative Minimum Tax. The exemption amount levels for the 2010 tax year are as follows:
For 2010 tax returns, the AMT minimum exemption amount for a child who has earned income that is taxed at their parent’s tax rate has also been increased to $6,700.00.
If you are unsure of whether or not you may need to pay the Alternative Minimum Tax you can use the IRS AMT assistant to help. Additionally, to find out more information on the tax you can check out IRS form 6251.
This post was published on March 22, 2011