Here’s a nasty bounce down the fiscal cliff that even pessimists haven’t mentioned.
Millions more middle-class New York-New Jersey taxpayers would be socked with the dreaded alternative minimum tax (AMT).
“That could be a nightmare,” said Bernard Kiely, a CPA in New Jersey. “You’re going to have to pay the AMT when you never had to in the past.”
The AMT was passed in 1969 as a complicated formula to stop some 150 millionaires from paying less in taxes than the average Joe.
Congress has “patched” the tax code periodically to ensure that the AMT didn’t suddenly hit tens of millions of regular taxpayers.
But the latest patch expired at the end of last year, with the expectation that Congress would fix the problem retroactively.
Failure to patch “will cause 28 million more taxpayers to be subject to the tax, giving them a much larger tax liability than they had anticipated,” according to the American Institute of Certified Public Accountants (AICPA).
Individuals earning $33,750 a year and married couples filing jointly with just $45,000 could be hit with the AMT, says the AICPA.
Kiely offered the example of a person who made $110,000 in 2011 and owed no AMT. But in 2012 he’d pay $1,450.
On top of everything else, IRS computers are now programmed to assume an AMT patch will take place. As a result, “more than 60 million taxpayers might be prevented from filing their returns while we are reprogramming our computers,” acting IRS Commissioner Steven Miller recently wrote.