AMT Exemptions

Posted by Jill on January 10, 2011

The big news last year was about the Obama tax compromise revolving around the Payroll Tax Cut and the extension of the 2001 Bush Tax Cuts.

But the tax deal that was passed at the very end of the last Congress included an “AMT patch” to fix to the alternative minimum tax, or AMT for 2011. The AMT patch expired on December 31, 2011. See the potential 2013 IRS Tax Refund Delays caused by the expiration of the AMT patch.

Update: The Fiscal Cliff Deal will permanently fix the AMT in addition to creating the 2012 AMT patch. The AMT now has a permanent inflation index, so we won’t need the annual AMT patch.

What is the AMT?

The AMT was created in 1969 to ensure that the very wealthy paid an appropriate share of taxes. With so many strategies available for lowering your tax bill, the very rich (and smart) were finding ways to reduce their taxes to almost nothing.

Congress enacted the AMT so that these people had to pay a certain amount, regardless of the deductions and exemptions that would otherwise be available to them. The AMT tax gets rid of the standard tax brackets and instead applies a 26% tax rate to the first $175,000 and 28% after that.

The problem with the AMT is that it was not created with an inflation adjustment. So over time, the AMT stopped applying to just the very wealthy and started affecting middle class taxpayers. Each year, Congress has to pass an “AMT patch,” thus reducing the number of people who fall into AMT territory.

How the AMT Works

Technically every taxpayer must calculate their taxes under both the “normal” rules and the AMT rules. The AMT rules allow for fewer deductions – in fact, AMT payers cannot claim the standard deduction, personal exemptions or other taxes paid.

If you use tax software or employ a tax preparer, your taxes are calculated both ways even if you don’t know it, and you owe the higher of the two. But if you pay the AMT in some years and don’t pay it in others, you may be able to take a credit to get some of the AMT back.

AMT and the Tax Deal

As stated earlier, you owe the higher of “normal” income taxes or the AMT tax. But Congress has intervened to pass a special exemption in each of the last several years, referred to as the AMT patch.

AMT Exemption

Under the exemption, you do not owe AMT on the first $X of income, even if you otherwise would owe it. The current AMT exemption amounts are:

AMT Exemption Single Married Filing Joint
AMT Exemption 2010 $47,450 $72,450
AMT Exemption 2011 $48,450 $74,450
AMT Exemption 2012 $50,600 $78,750
AMT Exemption 2013 $51,900 $80,800

Of course some taxpayers will still have to pay the AMT. You can use the IRS AMT Assistant to see how the new exemption rules might affect you.

Be sure to stay tuned, we’ll cover ways to minimize your AMT liability – even if you’re too late for last year, tax planning for this year should already be under way!

More Tax Information

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