According to the acting commissioner of the Internal Revenue Service, millions of American taxpayers in Texas and other states could face problems if legislators are unable to resolve issues with the alternative minimum tax before the potential “fiscal cliff” as 2013 arrives. While the IRS previously estimated that the AMT would affect about 60 million taxpayers, the commissioner has since raised that estimate to between 80 and 100 million of the U.S.’s 150 million total taxpayers.
The alternative minimum tax, generally referred to as the AMT, is a levy imposed by the IRS on trusts, corporations and other high-income taxpayers designed to make sure such parties pay a certain sum in taxes when large deductions and exemptions would significantly lower their owed amount. Lawmakers usually agree to “patch” the tax to account for inflation and prevent it from unintentionally affecting lower-income taxpayers, but negotiations over how to avoid the impending fiscal cliff have thus far prevented a bipartisan agreement regarding the AMT.
The IRS claims that around 33 million Americans will be subject to the AMT in the coming year if legislators do not agree to a patch, but millions more would be unable to file their tax returns and would likely face a delay in receiving their refunds Furthermore, some citizens would be forced to pay much higher taxes than they expect. This is because the IRS has been unable to update its forms and software without approval from Congress, preventing most Americans from starting their tax returns. The IRS also does not know which taxpayers will be compelled to pay the AMT.
With just 4 million taxpayers currently affected by the AMT, the issue threatens to have severe repercussions. While representatives with IRS declined to say how the agency plans to address the AMT, one U.S. representative said that a lack of action to solve the problems posed by the fiscal cliff would “throw the 2013 tax filing season into chaos.”
Source: Daily Finance, “Fiscal Cliff: 100 Million Taxpayers Could Face Delays, IRS Says,” Dec. 21, 2012