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House extends exemption levels for Alternative Minimum Tax

WASHINGTON—The House of Representatives voted Wednesday to delay a scheduled tax increase that would hit about 19 million taxpayers next year and may still have an impact on 30 million Americans a year by 2010.

House members voted 414-4 to extend by one year the current income-exemption levels for the Alternative Minimum Tax. The Senate already had approved the extension, though as part of a broader tax-cut package rather than as standalone legislation. If the House and Senate pass identical bills containing these AMT terms, as is likely, President Bush is expected to sign it into law.

The AMT affects few families with incomes below $50,000, but increasing numbers of them at every income level above that, up to $1 million. Its impact varies depending on eligibility for tax deductions under the regular income tax.

The AMT was enacted in 1969 originally to prevent higher-income taxpayers from using credits, deductions and other measures to shield all their income from taxation. It parallels the regular income tax, but disallows many tax preferences available under the usual income tax. Taxpayers must calculate how each tax would affect their taxable income and pay the higher of the two amounts.

Because the AMT isn't adjusted for annual inflation, income levels that once were high increasingly are only middle-class, so each year more and more Americans become subject to the AMT.

The House's extension would exempt from AMT taxation the first $58,000 of income for married couples filing jointly and the first $40,250 for individual tax filers.

Without the extension, the amount of income that's exempted from the AMT would fall to levels that were set before tax-law changes in 2001 and 2003: $45,000 for married couples and $33,750 for individuals.

The higher exemption levels also will be raised slightly in 2006 to compensate for 2005's inflation rate, once that's calculated.

This year, 3.6 million Americans, fewer than 3 percent of tax filers, were affected by the AMT, sometimes called a "stealth tax." Failure to extend the higher exemption levels would have exposed 19 million taxpayers in 2006, or 14 percent of all taxpayers.

The nonpartisan Congressional Budget Office projects that almost 1 in 4 taxpayers could be hit by the AMT by 2010 unless a permanent fix is adopted.

House sponsor Rep. Thomas Reynolds, R-N.Y., said the taxpayers who'd be spared tax increases in 2006 otherwise would have paid, on average, $2,736 more.

"It would be crushing to millions of American families and taxpayers to increase their tax burden by more than $2,700," Reynolds said in a statement.

The extension effectively puts off for another day the larger battle over eliminating the AMT. By 2010, unless changes are made to the AMT, two-thirds of the 26 million taxpayers with adjusted gross incomes between $50,000 and $100,000 will be subject to it. More than 85 percent of taxpayers with incomes between $100,000 and $500,000 a year will too.

The AMT is difficult for Congress to repeal because it generates huge revenues and lawmakers would have to either raise revenue or cut spending elsewhere to offset its loss. The extension alone will cut revenue by $12.5 billion in 2006, according to the House Committee on Ways and Means, which wrote the extension. If the AMT were eliminated, it would cost the Treasury $600 billion over 10 years, according to the CBO.


(c) 2005, Knight Ridder/Tribune Information Services.

ARCHIVE GRAPHIC on KRT Direct (from KRT Graphics, 202-383-6064): 20030217 TAX AMT

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