Getting Socked by the Federal Alternative Minimum Tax (AMT)?
According to the latest study from the Tax Foundation, “The AMT was originally designed as a backstop for the federal income tax, and affected only a small number of wealthy taxpayers.” However, the Tax Foundation also found that:
“its reach has grown in recent years, and it has begun drawing in middle- and upper-middle income taxpayers as well. In 2000 just 1.3 million tax returns were subject to the AMT. If left unreformed, the Joint Committee on Taxation estimates the number of AMT returns will spike to 19 million in 2006, reaching a peak of 29 million in 2010—nearly 20 percent of all tax filers—before tapering off sharply.1 As a result, reforming the AMT has become a key legislative priority for many Members of Congress.”
What pushes taxpayers into the AMT? According to the Tax Foundation:
“The factors that push taxpayers into the AMT are more prevalent in some areas than others, so it is not surprising that some congressional districts are more heavily affected by the AMT.
What pushes taxpayers into the AMT? Because the AMT is a parallel tax code to the ordinary federal income tax, when filing tax returns each April taxpayers must calculate their liability under both systems and pay whichever amount is highest. As a result, anything that decreases ordinary income tax bills or increases AMT tax bills pushes more taxpayers into the AMT. Several factors help explain why some areas are hit harder than others:”
The Tax Foundation found that some Congressional districts are hit harder by the AMT than others. For example, in the "top 20" districts, the percentage of returns subject to the AMT ranges from 7.19% to 13.52%. while the percentage in the "bottom 20" districts is 0.53% or less. In Virginia's 8th Congressional disticts, which includes all of Arlington, 4.56% of taxpayers get socked by the AMT.
Ah yes, that wild and wonderful complex federal tax code. Time for a flat tax or a FairTax!