Now even the IRS is lobbying for Congress to reach a decision regarding the expiring Bush-era tax cuts as well as the alternative minimum tax (AMT) patch. The IRS concerns stem from the fact that their tax processing systems are based on current tax legislation and the expectation the AMT will be patched, which could change drastically on January 1, 2013. How will you be impacted?
Who might be impacted if the AMT is not patched?
The AMT “Patch” for joint filers is set to drop from $74,450 in 2011 to $45,000 for the 2012 tax year and from $48,850 in 2011 to $33,750 for single filers. Therefore, if Congress doesn’t retroactively apply the patch and you earn more than $45,000 and have high deductions for such things as state and local taxes, second mortgages not used for improving your home, dependents and incentive stock options granted through your employer, you could be subject to a large tax increase come 2013. Taxpayers with families and second mortgages could feel the brunt of the pain. To put this into perspective, if Congress fails to extend the patch for 2012, an estimated 33 million U.S. taxpayers would be subject to AMT as opposed to 4.4 million if the patch was in place (source: IRS).
How might 60 million taxpayers be impacted?
The AMT patch has always been accompanied with a special tax credit order rule which applies to any taxpayer claiming a tax credit. The IRS’s tax processing systems are based on the expected AMT patch and special tax credit ordering rule. Should this change, more than 60 million taxpayers could be impacted as it doesn’t just relate to those subject to the AMT.
How can I prepare?
We’ve advised taxpayers to take a wait and see approach as tax legislation could be impacted by the now completed November elections. Since we know that President Obama will be in office the next four years, taxes are scheduled to increase. However, we think there is some hope with regards to the AMT patch. In both 2007 and 2010, the AMT patch was expired and Congress reached an agreement in the last month of the year to retroactively reinstate the patch to avoid a tax increase for most filers. During those years, the IRS kept their tax processing systems as if the AMT patch would be reinstated. This year, the IRS has stated that they will continue to keep their tax programs set to account for an AMT patch in 2012. While the IRS isn’t in control of Congressional decisions, we believe that it’s an indication that lawmakers will probably reinstate the AMT patch. If they don’t, the IRS will be forced to re-program their tax processing systems and the entire tax filing process could be delayed a few months. Simply stated, taxpayers wouldn’t be able to file in January or February even if they wanted to and were ready.
More Questions? Browse Answers or ask your 2013 tax questions online.
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