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AMT relief in the American Recovery and Reinvestment Act of 2009 (MS Word)
AMT relief in the American Recovery and Reinvestment Act of 2009 (.pdf)
AMT relief in the American Recovery and Reinvestment Act of 2009
Dear Reader,
I am writing to provide details regarding two key provisions in the
recently enacted “American Recovery and Reinvestment Act of 2009”
(the 2009 economic stimulus act). The provisions extend partial
relief to individual taxpayers from the alternative minimum tax, or
AMT. Earlier temporary measures to deal with the unintended creep of
the AMT's reach expired at the end of 2008, meaning that more than
20 million additional taxpayers would have faced paying the tax on
their 2009 returns without the new relief.
Brief overview of the AMT.
The AMT is a parallel tax system which does not permit several of
the deductions permissible under the regular tax system, such as
property tax. Taxpayers who may be subject to the AMT must calculate
their tax liability under the regular federal tax system and under
the AMT system taking into account certain “preferences” and
“adjustments.” If their liability is found to be greater under the
AMT system, that's what they owe the federal government. Originally
enacted to make sure that wealthy Americans did not escape paying
taxes, the AMT has started to apply to more middle-income taxpayers,
due in part to the fact that the AMT parameters are not indexed for
inflation.
In recent years, Congress has provided a measure of relief from the
AMT by raising the AMT “exemption amounts”—allowances that reduce
the amount of alternative minimum taxable income (AMTI), reducing or
eliminating AMT liability. (However, these exemption amounts are
phased out for taxpayers whose AMTI exceeds specified amounts.) For
2008, the AMT exemption amounts were $69,950 for married couples
filing jointly and surviving spouses; $46,200 for single taxpayers;
and $34,975 for married filing separately. However, for 2009, those
amounts were scheduled to fall back to the amounts that applied in
2000: $45,000, $33,750, and $22,500, respectively. This would have
brought millions of additional middle-income Americans under the AMT
system, resulting in higher federal tax bills for many of them,
along with higher compliance costs associated with filling out and
filing the complicated AMT tax form.
New law provides one-year stopgap fix.
To prevent the unintended result of having millions of middle-income
taxpayers fall prey to the AMT, Congress has once again relied on a
temporary “patch” to the problem, this time a one-year extension of
the 2008 exemption amounts, increased slightly. Under the new law,
for tax years beginning in 2009, the AMT exemption amounts are
increased to: (1) $70,950 in the case of married individuals filing
a joint return and surviving spouses; (2) $46,700 in the case of
unmarried individuals other than surviving spouses; and (3) $35,475
in the case of married individuals filing a separate return.
Personal credits may be used to offset AMT through 2009.
Another provision in the new law provides AMT relief for taxpayers
claiming personal tax credits. The tax liability limitation rules
generally provide that certain nonrefundable personal credits
(including the dependent care credit and the elderly and disabled
credit) are allowed only to the extent that a taxpayer has regular
income tax liability in excess of the tentative minimum tax, which
has the effect of disallowing these credits against the AMT.
Temporary provisions had been enacted which permitted these credits
to offset the entire regular and AMT liability through the end of
2008. The new law extends this temporary provision to tax years
beginning in 2009.
I hope this information is helpful. If you would like more details
about this or any other aspect of the new law, please do not
hesitate to call.