The “fiscal cliff” expiration of the Bush Tax Cuts isn’t the only urgent tax issue facing Congress.
Unless Congress takes action, many taxpayers could be facing an “April surprise” of a federal tax bill for 2012.
The reason is Congress hasn’t adjusted the exemption for the alternative minimum tax for 2012. (The Congressional correction for this is call an “AMT patch”. It’s almost an annual ritual.)
For 2011, the AMT exemption amount for married persons filing a joint tax return was $74,450, for single persons it was $48,450, and for married persons filing separately it was $37,225.
If Congress doesn’t fix the problem, the exemptions for 2012 will be the pre-2001 amounts of $45,000 for a joint tax return, $33,750 for singles and $22,500 for married persons filing separately.
Ironically, the exemption issue is insignificant for high income taxpayers, because their exemption is phased out.
I met with a retired couple yesterday with modest income mostly from from Social Security and withdrawals from their IRA accounts. Since they have a sizeable deduction for property taxes on their California residence, which isn’t allowed when computing the AMT, an AMT would be generated if they made a $20,000 Roth conversion. No AMT would result if the 2011 AMT exemption applied.
This is an illustration how even taxpayers with fairly low income amounts can be subject to the AMT.
According to a report by the Congressional Research Service, if Congress doesn’t take action, about 30 million taxpayers, about 20% of all taxpayers, will be subject to the alternative minimum tax for 2012. In 2009, 3.8 million, about 2.7% of all taxpayers, were subject to the tax.
By all means, contact your representative in Congress to resolve this issue now.