The year is rapidly drawing to a close, and Congress has not yet addressed the Alternative Minimum Tax patch. This so-called patch is the adjustment that needs to be made to the AMT exemption amount to prevent 26 million new taxpayers from falling into the Alternative Minimum Trap this year, as well as to prevent each of the 4 million already stuck there from paying thousands more in AMT dollars. With the Republican Partys success in the recent election, will the lame-duck Congress, which is still controlled by the Democrats, be able to get this done in time or not?
As of January 1 of this year the AMT exemption reverted back to what it was nearly 20 years ago an amount significantly lower than what it was for 2009. Through a series of successive and annual temporary patches over this 20-year period, the exemption has been indexed for inflation so as to keep the number of Alternative Minimum Tax payers relatively constant currently approximately 4 million taxpayers. These patches generally have been for just one year at a time because the cost of doing them is so large. Some day there may be a permanent fix, but it is unlikely that this will happen anytime soon.
The 2009 AMT exemption amount, itself the product of last years patch, was $46,700 for single taxpayers and $70,950 for married couples filing jointly. What this exemption amount generally means is that a taxpayers Alternative Minimum Taxable Income (AMTI) for 2009 had to be more than $46,700 higher ($70,950 for couples) than the taxpayers Regular Tax taxable income before the AMT even would begin to apply.
For 2010, these exemption amounts revert back to $33,750 for single taxpayers and $45,000 for married couples filing jointly, and will stay there unless Congress acts again to update them for inflation. The significant difference in these exemption amounts equates to 26 million potential AMT payers.
The draft Form 6251 for 2010, which can be found on the IRS web site, reflects these lower exemption amounts, because the IRS does not have the authority to use a different number until Congress acts.
Caution: if this draft form is being used by a taxpayer as a 2010 AMT calculator, it will produce an Alternative Minimum Tax liability substantially higher than what it likely will end up being after Congress acts.
Congress returns for its post-election session on November 15th, takes the following week off (Thanksgiving), and then returns for just three more weeks before the final adjournment of the 111th Congress. The Congressional agenda is over-full, with many, many things to do in addition to taxes. Just in the tax area, however, it has to deal with the expiration of the Bush tax cuts, the expired estate tax, and dozens of extenders those miscellaneous provisions in the tax law that expired on December 31 of last year.
Stay tuned for developments on the patch conventional wisdom is that Congress will get this done, but its likely to be a bit of a mad scramble as this and all of the other legislative needs are addressed during this short period of time.