WASHINGTON — Congress gave final approval Wednesday to a bill that would protect about 20 million households from a tax increase caused by the alternative minimum tax.
The House voted 352 to 64 to prevent middle- and upper-middle-class taxpayers from being hit by the AMT, which was designed in 1969 to target the very rich. President Bush was expected to quickly sign the bill.
The main beneficiaries would be people in the $75,000 to $200,000 income level: Nearly half of taxpayers in that range would have been affected without Congress’s patch, according to the congressional Joint Committee on Taxation.
Congress next year must patch the AMT again or force millions of families to pay more tax. And the legislation passed so late in the year that 15 million Americans will probably have to wait longer than usual to get their refunds in 2008.
The Internal Revenue Service had urged lawmakers to act sooner, warning that the longer they waited to repair the AMT, the more disruption taxpayers would encounter when they filed their 2007 tax returns. The rules governing the AMT affect not just people who are forced to pay the levy but also almost all taxpayers who itemize deductions.
Without the AMT fix, those subject to the tax would have risen from 4 million in 2006 to about 25 million in 2007, with the average levy of $2,000 a taxpayer.
The bill increases the AMT exemption amount to $66,250 for couples filing jointly and $44,350 for single taxpayers for the 2007 tax year. If Congress hadn’t acted, it would have dropped to $45,000 for couples and $42,500 for single filers.
The savings could be thousands of dollars. For instance, couples who would have fallen into the AMT with a $45,000 exemption amount but now avoid the alternative tax will be spared a $5,000 tax hike, said Alan Weiner, senior tax partner at Holtze Rubenstein Reminick in New York.
Now fewer than 2 percent in that range will have to pay the tax.
The AMT was meant to prevent the very wealthy from using deductions, credits and other shelters to avoid paying taxes. But its income thresholds did not rise with inflation, gradually bringing more and more middle-income people into its net.
The IRS has said it needs seven weeks from the patch’s enactment to adjust its computers to the change. Given the lag time, as many as 15.5 million tax refunds totaling $39 billion will be delayed next year, the IRS’s oversight board has estimated. In other words, 11 percent of 140 million filers will probably have to wait a little longer to get their money back from the IRS.
“The filing season usually starts the second week in January,” said William Fleming of PricewaterhouseCoopers, an accounting firm. But the delay in passing the patch, he said, “could cause a delay in early filing by as long as a month and a delay in getting refunds by the same period of time.”
Democrats had promised all year not just to fix the AMT but also to pay for revenue losses connected to the change. Democrats pledged to make up the patch’s $50 billion loss by raising taxes or cutting spending. In the end, they did neither.
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