Business

AMT patch saves NYers $8B in taxes

The average New York/New Jersey taxpayer just dodged a bullet with the letters AMT on it.

Millions of taxpayers were slated to be socked with a rich man’s tax for the first time but will get a reprieve if President Obama’s budget proposal is passed.

That would be the effect of the president’s proposed adjustment of the alternative minimum tax (AMT).

If the change isn’t passed, CPAs have estimated that some 1.9 million middle-income New Yorkers would have to pay about $4,000 a year more in taxes.

The Obama AMT plan also contains a proposal that would reduce itemized deductions of those making $250,000 a year.

“What the president has proposed in substance is to not let the AMT change in terms of the number of people that it affects,” according to Clint Stretch, managing principal for tax policy for Deloitte Tax, a CPA firm in Washington. “President Obama is also asking that high-income taxpayers, who have lots of itemized deductions, to pay for that,” he added.

It is likely that both parties will adopt the concept of an AMT adjustment, Capitol Hill watchers say. Indeed, the AMT is a tax that had been adjusted, or patched, numerous times over the last few years.

And it probably will have to be patched again in a few years owing to bracket creep, according to CPAs. “We would prefer that President Obama would abolish the AMT. We need tax simplification and this tax is complicated,” according to Melissa Labant, technical manager with the American Institute of Certified Public Accountants (AICPA).

She explains the AMT is a parallel system of taxation in which the normal deductions and credits don’t apply. For instance, deductions for state and local taxes are not allowed, even though they are for anyone who itemizes and is not covered by AMT.

Congress’ Joint Committee on Taxation, for instance, found that in the 15 percent tax bracket, the number of those affected by the AMT had drastically increased. Between 2005 and 2010 it went from 0.6 percent to 17.8 percent. In the 25 percent tax bracket it went from 3.7 percent in 2005 to 52.4 percent in those same five years.