I see that Congress has promised the IRS that it will act on AMT before closing down for the holiday season.
That doesn’t mean it will be acting on Senator Rangel’s “mother of all tax reforms” bill, though. Congress has explicitly stated that the best they will do is pass a “patch,” that will temporarily raise the AMT threshold (the amount of income you can make before you become subject to AMT). As for dealing with AMT – or Senator Rangel’s bill, for that matter, it will be next year at the earliest (or after the election, is my feeling) before any meaningful discussions or changes take place.
A couple of weeks ago I told you that the IRS had released a report stating that it was up against the deadline for preparing updated tax forms and reprogramming its computer system to deal with next year’s tax returns. The lack of movement on AMT had left the IRS twisting in the wind for so long that it now couldn’t be ready for next year in a timely fashion. The IRS also noted that the delay was causing serious concerns among financial planners, CPAs, tax strategies and taxpayers – in other words, everyone affected by AMT.
In practical terms this is going to mean even more people filing for an extension next year. It’s also going to mean that people who like to file early and receive an early refund will be disappointed, because the IRS figures it will be about 10 weeks behind, once it finally gets the new information and can begin programming its computers for the upcoming tax season. The IRS estimates that Congress’s inaction is going to delay processing of about 50 million taxpayer returns and the payment of refunds worth about $75 billion.
This is one of the reasons why I never recommend paying more taxes than you owe each year. If the idea is to create enforced savings, then why not open up a savings account at your local bank and have an automatic withdrawal taken from your paychecks instead? This way you receive interest, and have access to that money. Paying more tax than you need to in order to guarantee a return amounts to nothing more than giving the government an interest-free loan that it repays at its own convenience – not yours.
But back to AMT – House Ways and Means Committee and the Senate Finance Committee put out a joint news release this morning promising to enact a AMT patch before Congress breaks for the holidays. We can expect to see temporary AMT income thresholds of $44,350 for individuals and $66,250 for married taxpayer, filing jointly.
The sticking point appears to lie in how to offset the money that will be lost by not hitting so many Americans with AMT. In years past Congress hasn’t worried about that – any lost revenue was simply tacked onto the existing deficit. But one of the campaign planks used by the Democrats in last fall’s mid-term elections was a promise to adopt “pay-go” to new legislation. In other words, all tax cuts need to be offset by revenue increases somewhere else. So if 23 million more Americans aren’t going to become subject to AMT next year and pay an estimated $2,000 more each (that’s just a rough average – you can expect to pay significantly more if you’re in a high tax bracket and live in a “trigger” state like New York or California), then the question becomes … where is that money going to come from? It’s this “where” question that is causing the delay in Washington.