Perhaps one of the most confusing things for individual tax filers to deal with each year at tax filing time is the Alternative Minimum Tax, or AMT.  In the most simple terms, the AMT is an alternate tax that was implemented over four decades ago to ensure that high-earning individuals who benefit from certain tax advantages still pay at least some minimum amount of tax.

Originally, the AMT was intended to mostly affect high income individuals who were able to substantially or completely reduce their income taxes through legitimate tax deductions and credits.  However, because the AMT is not indexed to account for inflation, the AMT now impacts millions more taxpayers than likely ever was contemplated when the law originally was enacted.

Many commentators and tax critics—including many politicians—have decried the AMT as onerous and over-reaching in terms of the number of taxpayers which the law now impacts, especially the number of middle-income taxpayers which are affected.  Congress has introduced numerous proposals for legislation to overhaul the AMT in recent years, but no major revisions to the law have been passed.  Thus, unless and until Congress changes the law, the AMT is a part of the Tax Code and taxpayers should understand its impact.

Here are some facts to know about the AMT and changes to this special tax for 2009:

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions that they owed little or no income tax. (Under the AMT, many deductions and credits available to reduce ordinary income tax are not available to reduce the AMT.)

2. Since the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

• $70,950 for a married couple filing a joint return and qualifying widows and widowers;
• $46,700 for singles and heads of household;
• $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax also is allowed as a deduction for the AMT.

The IRS has made available on its website an electronic version of what it calls the AMT Assistant for Individuals to help individual taxpayers determine whether they may be subject to the AMT. (The AMT Assistant is an electronic version of the AMT Worksheet found in the Instructions to IRS Form 1040, called the “Worksheet to See if You Should Fill in Form 6251 – Line 45.”)  The AMT Assistant is intended to provide a simple test for taxpayers who fill out their tax returns without using software to determine whether they may be subject to the AMT.

For further information, or for additional help to determine if and how the AMT impacts your individual tax filing, consult your professional tax advisor or tax preparer, or visit the IRS web site at IRS.gov.