It is already March and many people are still looking backwards focusing on their 2011 tax returns. A good number of you and “you know who you are”, will procrastinate until April to complete your returns. However, proactive taxpayers are already planning for 2012 and 2013.
If you are still looking in the rear view mirror you probably are not aware of a substantial increase in 2012 income tax that may affect you unless federal tax law is changed. This is because Congress and the President have not yet enacted legislation increasing the 2012 Alternative Minimum Tax (AMT) exemptions, as they have done so the past several years. Without the exemption increases, sometimes referred to as the AMT patch, mostly middle and upper middle income families will pay more than $100 billion additional income tax in 2012. So I guess you could say that the country will (at least in part) be running on AMT if the law is not changed. (I always try to bring closure to my puns.)
In November 2011 I highlighted the 2012 increases in AMT and the employee payroll tax unless the AMT patch and the employee payroll tax cut were extended to 2012. Last month legislation extended the employee payroll tax cut to all of 2012. Although the federal government is very much aware of the AMT patch issue, there is no imminent legislation extending the AMT patch to 2012. Without the AMT patch many middle and upper middle income families will pay more AMT then they saved from the employee payroll tax reduction.
When are Congress and the President going to address this issue? As more and more people become aware of the AMT problem and related additional tax liability doesn’t this diminish the economic stimulus benefits of the payroll tax cut? Without the AMT patch it seems that the government is giving with one hand while taking away with the other. As if the government has not done this before, will taxpayers be left to twist in the wind while the issue remains unresolved? The federal government should address the AMT patch (whether enacted or rejected) now.
Of course, everyone should understand that extending the AMT patch to 2012 probably will increase the 2012 deficit more than $100 billion. It is unlikely Congress will be able to agree on offsetting measures in an election year. Unless this issue is brought to the forefront, there is a chance this issue will remain unaddressed until perhaps as late as early next year. Come on everybody, let’s do the twist.
