Alternative Minimum Tax

Treasury Secretary Henry M. Paulson Jr. warned lawmakers Tuesday that delays in enacting a temporary fix to the alternative minimum tax could cause millions of taxpayers to experience delays in receiving their refunds. In a letter to Congress, Paulson also again warned that failure to pass an AMT fix would expose 21 million mostly unsuspecting taxpayers to the minimum tax -- and an average tax increase of $2,000.

As new polls show him leading Mitt Romney in the Michigan primary, Rick Santorum visited the Detroit Economic Club and outlined his plan for economic growth, pledging to both cut the entitlements that were "completely consuming revenues" and help the very poor. The two pledges might seem mutually exclusive, but Santorum, who from the beginning of his campaign has emphasized the importance of two-parent families in economic stability, said that strong families and strong communities would help the poor get back on their feet.

Congress is trying to amend the tax code to keep millions of Americans from having to pay the alternative minimum tax, which the Internal Revenue Service and the taxpayer advocate say is one of the most complicated provisions for taxpayers. What is the alternative minimum tax? The AMT is a tax on income calculated by an alternative method than that used to calculate the standard income tax. Unlike the standard income tax calculation, which allows multiple deductions, the AMT calculation is designed to limit deductions.

President Obama is combining his proposal to raise taxes on the wealthy with a new effort to lower the levy on middle-class Americans. In his fiscal 2013 budget proposal, the president called for abolishing the alternative minimum tax. It was designed years ago to prevent wealthy people from dodging taxes, but nowadays is blindsiding a growing number of middle-income people. The president wants to replace the AMT with the so-called Buffett rule, which would require people making more than $1 million a year to pay at least 30% in taxes.

The Senate voted Thursday to shield about 20 million middle-class taxpayers from an unexpected tax hike this year, bringing Congress a step closer to ending a bitter debate that has dragged on so long it threatens to delay refunds next year. But the deal worked out between party leaders to prevent the alternative minimum tax from snaring more Americans does not comply with the budgetary guidelines Democrats enacted this year to rein in the national debt.

Did you exercise incentive stock options last year, pay a lot of state income tax or claim deductible medical expenses for 1999? If so, it's time to worry. You're at risk of being subjected to the dreaded alternative minimum tax, a little-known form of federal taxation that is creeping up on an increasing number of Americans. The number of taxpayers subject to the AMT has more than quadrupled in the last decade.

Congress agreed Wednesday to spare more than 20 million taxpayers from the alternative minimum tax this year, bowing to Republican demands that the $50 billion in tax relief not be offset with any tax increases elsewhere. On the last day of legislative business this year, the House voted 352-64 to "patch" the so-called AMT, ensuring that millions of middle-class households -- some with incomes as low as $75,000 -- will be sheltered from the tax's bite.

Tax accountants may not be known for literary allusions, but when you talk to Mark Luscombe about the alternative minimum tax, he's likely to quote Lewis Carroll. When it comes to the AMT, the already curious U.S. tax code just gets "curiouser and curiouser," says Luscombe, principal tax analyst at CCH Inc., a Riverwoods, Ill.-based publisher of tax information.

President Obama is combining his proposal to raise taxes on the wealthy with a new effort to lower the levy on middle-class Americans. In his fiscal 2013 budget proposal, the president called for abolishing the alternative minimum tax. It was designed years ago to prevent wealthy people from dodging taxes, but nowadays is blindsiding a growing number of middle-income people. The president wants to replace the AMT with the so-called Buffett rule, which would require people making more than $1 million a year to pay at least 30% in taxes.

Opening a Tax Window: Congress has passed a six-month extention of the tax "window" allowing individuals subject to the Alternative Minimum Tax to claim full-market-value deductions for gifts of art and other appreciated property. President Bush is expected to sign the legislation into law.

Newt Gingrich's proposed tax plan would cut federal revenue by nearly $1.3 trillion, or 35%, according to an analysis by the nonpartisan Tax Policy Center. Much like Texas Gov. Rick Perry's plan, Gingrich proposes to let taxpayers choose if they want to calculate their tax using the current code, or a flat 15% rate. (Perry's plan gave the option of a 20% flat rate.) Because the plan allows taxpayers to choose how they want to calculate what they owe, nobody would be worse off. But, as was the case with Perry's plan, the idea that taxpayers would have to calculate their liability twice might turn some people off. The plan would do away with the Alternative Minimum Tax and most deductions and credits, but would keep deductions for mortgage interest and charitable gifts and the earned income, child and foreign tax credits.

Fresh off her win in the Iowa straw poll, Rep. Michele Bachmann said that if she is elected president she would spur the economy and create new jobs by reducing corporate taxes, repealing new Wall Street regulations and cutting federal spending for healthcare and retirees. “What will lead to job creation is taking the United States down from about the top corporate tax rate in the world at 34%, down to something more competitive,” Bachmann said on NBC's "Meet the Press. " She appeared on several Sunday morning talk shows after her first-place showing in Iowa on Saturday, and was pressed for what her prescription would be to improve the U.S. economy.

The outsized tax cuts enacted in President George W. Bush's first term are scheduled to expire at the end of the year, giving Congress the opportunity, in theory at least, to simplify the grotesquely complex tax code, eliminate the problematic Alternative Minimum Tax, broaden the tax base and lower rates without exacerbating the deficit. But that would be the politically hard thing to do. Instead, Republicans and Democrats are delaying action on taxes while they jockey for rhetorical advantage, each side accusing the other of seeking to ruin the economy or further enrich the rich.

First-time home-buyers would get a larger tax break. Laid-off workers would receive higher unemployment benefits and new subsidies for heath insurance. And all but the wealthiest workers would soon get a tax credit worth as much as $800 per couple. Bigger government checks -- long favored by lawmakers in an ailing economy -- could soon begin landing in mailboxes across the country, and new tax breaks would be available to many families, if the economic stimulus package clears Congress this week.

The House continued haggling with the Senate over tax policy, offering up two bills to deal with the alternative minimum tax and expiring tax credits for businesses. Rep. Charles B. Rangel (D-N.Y.), chairman of the tax-writing Ways and Means Committee, rejected the Senate assertion that the only way to pass tax relief legislation in the final hours of this session was for the House to accept the Senate version. The House could adjourn for the year as early as today. The Senate last week passed a multifaceted bill that makes adjustments to ensure that more than 20 million people don't get hit by the alternative minimum tax in 2008, with an average increase of at least $2,000.

The House passed a $54-billion tax package Wednesday that Democratic backers said would help relieve dependence on imported oil while easing the economic strain on parents, homeowners and businesses. The wide-ranging legislation passed 263 to 160, sending it to the Senate and an uncertain future. Most Republicans opposed the bill because it requires some corporations with offshore offices to pay more taxes and doesn't address shielding taxpayers from the alternative minimum tax. The White House, citing those factors, threatened a presidential veto.

As Friday's tax filing deadline approaches, more Americans are finding that a little-understood feature of the tax code called the alternative minimum tax is forcing their tax bills higher than expected. And though cutting taxes has been a defining characteristic of President Bush and GOP congressional leaders, prospects for change are uncertain. Instituted in 1969, the alternative minimum tax was designed to keep the richest of the rich from sheltering all their income from taxes.

The House is scheduled to vote today on a Senate-passed measure that would shield millions of middle-class taxpayers from the alternative minimum tax for one year. Failure to enact AMT legislation before this session of Congress concludes this week would be a political disaster for both parties, but especially for majority Democrats, officials said.

Congress agreed Wednesday to spare more than 20 million taxpayers from the alternative minimum tax this year, bowing to Republican demands that the $50 billion in tax relief not be offset with any tax increases elsewhere. On the last day of legislative business this year, the House voted 352-64 to "patch" the so-called AMT, ensuring that millions of middle-class households -- some with incomes as low as $75,000 -- will be sheltered from the tax's bite.

The House is scheduled to vote today on a Senate-passed measure that would shield millions of middle-class taxpayers from the alternative minimum tax for one year. Failure to enact AMT legislation before this session of Congress concludes this week would be a political disaster for both parties, but especially for majority Democrats, officials said.