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This year, it’s estimated that millions of Americans will pay the Alternative Minimum Tax, also known as AMT. The AMT requires some people to pay more than regular income tax.

Congress enacted the AMT in 1969 following testimony by the Secretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid zero federal income tax on their 1967 tax returns. In inflation-adjusted terms, those 1967 incomes would be roughly $1.17 million in today’s dollars. Source: TaxFoundation.org

11 things that may cause an AMT liability:

• Excessive Exemptions
• Standard Deductions
• State and Local Taxes
• Interest on Second Mortgage
• Medical Expenses
• Miscellaneous Itemized Deductions
• Various Tax Credits
• Incentive Stock Options
• Long-Term Capital Gains
• Tax-Exempt Interest
• Tax Shelters

Read more about these AMT liability factors

A major flaw in the AMT:

The Alternative Minimum Tax is NOT adjusted for inflation. This means that with each year that passes, more and more people will be affected by this double taxation. This includes people who were not originally targeted for this tax — middle and upper-middle income families.

If left unchanged, the AMT is estimated to penalize nearly 15 percent of taxpayers by 2010–some 12 million Americans in total.

Recommended Reading:

• IRS.gov – AMT Assistant
• Fairmark.com – Alternative Minimum Tax Guide
• Smartmoney.com – The Alternative Minimum Tax
• TurboTax.com – Alternative Minimum Tax FAQ

Image Source: National Center for Policy Analysis