A Tax Fact from The Tax Institute at H&R Block

What is the AMT?
AMT stands for the Alternative Minimum Tax. First introduced in 1969, the AMT was created to ensure that the wealthiest American households didn’t avoid paying income tax.

Unfortunately, the AMT exemption amount is not indexed for inflation, unlike many regular tax provisions. Plus, recent tax laws have lowered regular tax rates, but not the AMT. As your regular tax decreases, your AMT tax liability is more likely to be the higher tax. For these reasons, the tax now affects some middle-income tax filers. 

Congress has increased or extended the AMT exemption amount six times since 2001. The last exemption increase expired at the end of 2007, and in September 2008, Congress again increased the AMT exemption as part of the $700 billion rescue plan, more formally known as the Emergency Economic Stabilization Act of 2008.

AMT “patches” passed by Congress temporarily protect you from paying AMT by:

• Decreasing your AMT taxable income (by increasing the AMT exemption amounts).
• Allowing the use of certain personal nonrefundable credits against the AMT.

How does the AMT work?
The AMT has its own unique set of rules – it’s an alternative tax system that runs parallel to the “regular” tax system. You may not know it, but your taxes are always calculated the “regular” way and the AMT way. You are then liable for the higher tax liability.

For 2008, the number of taxpayers that might have been forced to pay AMT could have grown to over 25 million without the patch approved by Congress. But like 2007, the AMT patch is for Tax Year 2008 only.

The AMT exemption amounts are now expanded to $46,200 ($69,950 married filing jointly) up from 2007 amounts of $44,350 ($66,250 married filing jointly). And, certain nonrefundable personal tax credits, such as the Child and Dependent Care credit and education credits, continue to be allowed for both regular tax and AMT.

This Tax Fact is brought to you by The Tax Institute at H&R Block.

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As always . . . everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.