WASHINGTON — President Bush on Monday pushed Congress to pass a one-year fix to the "alternative minimum tax," which threatens to hit 23 million tax filers, warning that failure to do so could delay $75 billion in tax refunds next year.
The alternative minimum tax, or AMT, is calculated alongside the income tax, with the taxpayer paying the higher of the two calculations.
The AMT was passed in 1969 in a bid to close tax shelters for filers with incomes above $200,000, the equivalent of $1.2 million today. But it wasn't indexed to rise with inflation, so what was a fortune then is upper-middle income today in expensive parts of the nation.
Congress typically freezes the number of AMT payers at 4 million by passing annual legislation to "patch" the AMT. Absent the fix, some 70 percent of tax filers with incomes between $75,000 and $100,000 could face the AMT.
But "patching" the AMT deprives the Treasury of some $50 billion that the AMT would otherwise raise, and that complicates Congress' effort to reduce budget deficits.
The Democrats running Congress are feuding over the AMT patch. The House of Representatives wants to offset the lost AMT revenue with taxes on private equity firms and other businesses. But Senate Democrats favor passing a fix that wouldn't offset the lost revenue and thus would add $50 billion to the federal deficit.
Bush warned Monday that "the longer they delay, the more likely it is that there's $75 billion of refund checks that will be late" in arriving. That's because IRS tax forms can't be printed and prepared until Congress finishes changing the tax law. The IRS won't be able to process the refunds of Americans who file mortgage interest credits or any one of the 11 forms and deductions used in calculating the AMT.
Q: Why are $75 billion in refund checks at stake?
A: The IRS says it needs up to seven weeks from the passage of any AMT fix to finish changing electronic and paper tax forms. Bush's numbers imply that the tax filing season, which normally begins on Jan. 13, wouldn't start before Feb. 18.
Q: Will Congress pass a fix this year?
A: There's no guarantee, but House and Senate leaders pledge to do so before they recess this weekend for the holidays.
Q: If they succeed, when will the tax season begin?
A: Seven weeks from the end of this week would be the second week in February. That would be a four-week delay from the scheduled Jan. 13 start of tax filing. But Democrats insist that by law, companies have until Jan. 31 to send employees their W-2 forms. So technically, they say, the delay is really only about two weeks.
Q: Will IRS extend the April 15 deadline to file taxes because of the AMT delay?
A: Right now, there's no discussion of that. The IRS is ramping up computer systems and manpower to make up for the delay in its ability to process tax filings. The agency historically gets refunds to electronic filers more quickly than to paper filers.
Q: Who gets hurt by the delay?
A: The IRA Oversight Board estimated in late November that if tax filing season began on Feb. 4, it would result in delays for 15.5 million tax refunds out of about 130 million tax filings. Almost 12 percent of all tax filers could see their refunds delayed, totaling about $39 billion.
Q: Will electronic filers be spared delays?
A: No. The IRS said that by last Feb. 16, it had received 38 million tax returns, and almost 32 million were owed refunds. About 80 percent of these filed electronically. Tax-filing patterns are predictable, so that suggests that electronic filers will be delayed in greater numbers than paper filers.
Q: Which 12 forms are affected by the AMT delay?
A: Form 6251-AMT form; Form 1040, Schedule R - credit for the elderly or disabled; Form 1040-A, Schedule 2 - child and dependent care credit; Form 1116 - Foreign Tax Credit; Form 2441 - Child and Dependent Care Credit; Form 5695 - Residential Energy Credits; Form 8396 - Mortgage Interest Credit; Form 8839 - Qualified Adoption Expenses; Form 8859 - District of Columbia's First-Time Homebuyer Credit; Form 8863 - Education Credits; Form 8880 - Credit for Qualified Retirement Savings Contributions; Form 8801 - Credit for Prior Year AMT.
Sources: IRS Oversight Board, House Ways and Means Committee
ON THE WEB
Read the IRS Oversight Board's views on the AMT delay.