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Look out for ‘Alternative Max Tax’

By
Gregory Bresiger
Published Sep. 2, 2012, 4:00 a.m. ET

Cops, firefighters, teachers and 3 million other middle-class residents of New York and other high-tax states will pay nearly $3,000 more in taxes next year if a dysfunctional Congress can’t get its act together.

The jacked-up income tax comes courtesy of the Nixon-era Alternative Minimum Tax — originally aimed at forcing wealthy Americans to pay at least a small tax to Uncle Sam come April 15.

But the AMT was never inflation-indexed, so next year it will start walloping middle-class folks making as little as $45,000 — unless Congress steps up with another patch to the tax.

Washington lawmakers, bickering over everything from stimulus to energy production, haven’t seen fit to address the problem. And now Election Day is two months away.

“I tell my clients that when they’re in the AMT system, they’re in quicksand and there’s no way to get out,” says Bernard Kiely, a CPA in Morristown, NJ.

“It really should be called the Alternative Maximum Tax because that’s what it is. It raises a person’s taxes so much,” says lawyer and CPA Leon LaBrecque in Detroit.

“It’s ridiculous,” he adds, “because it really is going to affect middle- and lower-income people more than anyone.”

The AMT kicks in if taxpayers take more than a certain number of deductions — like for children, state income taxes and mortgage interest. In tax-heavy states like New York, couples with children can easily trigger the AMT.

Without a patch, the AMT will hit a majority of families with children with incomes over $50,000, according to a study by Sen. Charles Schumer (D-NY), who said some 3.4 million middle-class New Yorkers are at risk.

In previous, nonelection years, Congress put aside partisan bickering and passed legislation exempting most middle-class Americans from the effects of the AMT.

If the AMT kicks in, a two-earner family with kids with a gross adjusted annual income of $90,000 would see their tax bill jump 55 percent to $8,060 from $5,180, according to LaBrecque.

There is some hope.

Earlier this summer, the House passed The Job Protection and Recession Protection Act of 2012.

“This [proposed] patch is designed to hold the number of AMT-affected taxpayers constant at 3.9 million,” according to a statement by the House Ways and Means Committee.

Now Congress just has to get it passed.