Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was passed in 1969 to ensure that upper-income taxpayers paid at least some income taxes. Up to that point, taxpayers skilled at finding enough in itemized deductions, income exclusions and tax credits would sometimes manage to avoid paying any income taxes.
The AMT is not without its critics, however. Most notably, critics argue that income limits subject to the AMT have never been indexed to inflation. (In comparison, the IRS regularly adjusts the range of incomes that fall within regular income tax brackets to adjust for inflation.)
This lack of indexing, combined with the growth in incomes over the past 30 years, has resulted in many more taxpayers paying the AMT. Without the "AMT patch" passed by Congress in October 2008, about 22.7 million Americans would have paid the AMT in 2008, according to the Tax Policy Center. With the patch, the number is still around four million taxpayers. These numbers are expected to grow higher.
When you complete an individual income tax return such as IRS Form 1040), you will have to complete a worksheet to determine whether you may owe the Alternative Minimum Tax. If you do owe, you must complete Form 6251.
The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 liberalizes the use of the child tax credit and AMT by allowing AMT taxpayers to exclude the amount of the tax credit from their income.
For additional information on the Alternative Minimum Tax, see Tax Topic 556 at the IRS Web site (www.irs.gov).
