Alternative Minimum Tax (AMT)

In the 1966 tax year, it was noticed that 155 taxpayers with Adjusted Gross Income of $200,000 or more paid no federal income tax at all. In response to this Congress enacted the Alternative Minimum Tax (AMT) in 1969 in an effort to ensure that wealthy taxpayers are unable to avoid significant federal tax liability through the use of tax shelters and other means.

 

The AMT is a separate system from the regular income tax, with its own rules governing taxable and nontaxable income and the timing of deductions and credits. The higher income taxpayers and those who itemize deductions are the primary targets of this AMT tax. Form 6251 is designed to figure out the AMT tax liability.

Who must File Form 6251?

Form 6251 must be attached to any return if the deductions taken are greater than AGI, or the alternative minimum taxable income (AMTI) is above the exemption amount for the taxpayer’s filing status, or if any general business credits, the empowerment zone and renewal community employment credit, the qualified electrical vehicle credit, the alternative motor vehicle credit, the alternative fuel vehicle refueling property credit, or the credit for prior-year minimum tax credit is claimed. The AMT exemption amounts for different filing statuses are given in the below given Table.

AMT Exemption Amounts - 2012
Married Filing Joint Return and Surviving Spouses (S.S.)$45,000
Unmarried (Not S.S.) and Head of Household$33,750
Married Filing Separate Return$22,500
Estate and Trusts$22,500
The exemption phaseout threshold amounts have never been adjusted for inflation. The exemption phaseout threshold amount remains at $150,000 for joint filers and surviving spouses, $112,500 for singles or heads-of-household, and $75,000 for married filing separately. There has been no recent rate reduction for AMT rates (26% on the first $175,000 of AMT income and 28% on AMT income over $175,000) as there has for regular income tax rates.

 

An unintended result in more recent years has been that more and more middle-income taxpayers must complete Form 6251 and pay AMT Tax. Congress has repeatedly provided short-term relief to some taxpayers, extended the increased AMT exemption amounts and provided waivers that ensure that the AMT did not render personal tax credits useless. Despite these past modifications, many more taxpayers still found themselves paying AMT. The Good News is that Congress has recently approved a kind of permanent patch in the AMT system that is expected to provide great relief to all taxpayers.
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