I made an ugly discovery the other day: my husband and I will owe taxes this year.
It’s not a huge amount. Still, it took me by surprise. I thought I had planned our taxes well and had the appropriate amount taken out of our paychecks. My husband earned more last year than he had in years’ past. I wondered if that contributed to the higher tax bill.
This situation got me to thinking about another ugly reality: the Alternative Minimum Tax.
When it was created by Congress in 1969, the AMT, which has also been nicknamed “The Stealth Tax,” was designed to nab wealthy people that used extensive deductions to get out of paying their share of taxes. However, the AMT has never been adjusted for inflation and now affects the middle class, too.
The AMT severely limits deductions such as children, state and local taxes. That translates to a drastically higher tax bill.
There is some good news. Congress passed a patch for 2008 that raised the AMT exemption for married couples filing jointly to $69,950, for single filers or heads of households to $46,200, and for married couples filing separately to $34,975. Without the patch, the exemption for taxpayers would have reverted to pre-2001 rates: $45,000 for married couples filing jointly and $33,750 in 2009 for individual filers.
While this patch will certainly help a lot of families, there are still a fair number of middle class families that could feel the pinch. To find out if you’ll be one of them, go to the Internal Revenue Service’s Web site. Its features include an online worksheet to help you determine if you’re going to owe (http://www.irs.gov/businesses/small/article/0,,id=150703,00.html). You’ll need a copy of your draft Form 1040 (filled out at least through line 44). Then the “Assistant” asks you a series of questions, which takes about 5 to 10 minutes. The more accurate data you provide, the more accurate answer you’ll receive.
If you want to learn more about the AMT, check out the Web site for a great overview as well as links to other AMT resources:
http://www.smartmoney.com/personal-finance/taxes/the-alternative-minimum-tax-9540/
Romi Carrell Wittman is a writer and the communication services director for Trico Electric Cooperative. E-mail: romi.wittman@comcast.net.