Discussion about "How The Tax Law Affects The Alternative Minimum Tax (AMT) Calculation"

While the American Taxpayer Relief Act (ATRA) did not end the alternative minimum tax (AMT), it has three provisions with a major impact on the AMT calculation. These are important for high-income taxpayers—particularly those who exercise incentive stock options.

1. ATRA set the AMT income (AMTI) exemption amounts for 2012 at $50,600
   for single filers and $78,750 for married joint filers. It also permanently indexed the AMT income exemption amounts for inflation
   in future years (this had never been done before). From 2013 onward,
   the AMT income exemption amounts will be automatically raised slightly
   each year in accordance with inflation. The exemption amounts for 2013
   are $51,900 and $80,800, according to IRS Rev. Proc. 2013-15 (see page 8).


2. The law indexed the income thresholds where the phaseout of the AMT income exemption
   begins (the first time this has ever been indexed). AMTI exemption
   amounts are phased out by 25 cents for every dollar of AMTI over
   specified exemptions. In 2013, for married joint filers the phaseout
   range starts at $153,900 of AMT income; for single filers, the phaseout
   starts at $115,400 of AMT income. Therefore, in 2013 the exemption is
   fully phased out when AMTI is equal to or exceeds $477,100 for joint
   filers and $323,000 for single filers.


3. Achieving yet another first, ATRA also indexed the income threshold where the 26% AMT rate ends and the 28% AMT rate begins.
   In 2013, for unmarried single filers and married joint filers alike,
   this threshold is $179,500; for married people filing separate returns,
   the threshold is $89,750.

The permanent indexing of the AMT income exemption amounts for
inflation was an important development. Before ATRA, Congress had
enacted temporary AMT relief every year for several years as a stopgap
measure to keep middle-income people from being unfairly hit
by the AMT. This worked as an interim measure, but the annual process
in Congress for passing each patch was tortuous, politically charged,
and full of uncertainty. Eventually, there was a consensus that the
matter was too important to be left to last-minute legislative activity
every year. Without annual increases to control the spread of the AMT,
the AMT exemption amounts would have returned to the low levels of 2000
($45,000 for joint filers and $33,750 for singles), imposing the AMT on a
vast population of middle-income taxpayers it was never intended to
tax. By essentially automating the annual AMT patch, the
inflation-indexing of the exemptions obviated the former annual need for
Congressional action and eliminated the related yearly uncertainty.

Even if, after these three changes, you are still stuck with the AMT,
there are planning techniques that can help. See FAQs on
myStockOptions.com about how to minimize AMT liability, or how to manage it if you know you must pay it.