AMT Relief – May Be Too Late for Christmas Bills

More than 20 million families will be spared an extra $2,000 tax hit on average after Congress excluded them from a higher alternative tax originally aimed at untaxed multimillionaires.

An eleventh-hour vote to put a one-year freeze on growth of the alternative minimum tax shields many middle- and upper-middle income taxpayers from first exposure to the tax.  In 2006 it affected 4 million.

President Bush plans to sign the bill into law.

But by waiting until the last day of the session, less than a week before Christmas, Congress left in question whether the Internal Revenue Service can adjust its forms in time for the 2008 filing season to begin in mid-January.  Delays in processing returns could put off refunds to millions of people needing the extra cash for to pay those holiday expenses when the credit card bills come due.

The IRS says it will take about seven weeks to reprogram forms after the AMT fix is signed into law.  It hasn’t yet decided whether processing delays will be applied to just AMT taxpayers or to all those filing returns.

One-year fixes have become an annual congressional ritual for a tax that was enacted in 1969 to catch a small number of very rich tax dodgers but has come to entrap many more people because the tax was never adjusted for inflation.  The tax has alternative, more stringent rules for claiming deductions.  Many of the beneficiaries of the AMT fix are people with incomes in the $75,000 to $200,000 range.

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