What is the Alternative Minimum Tax?
Our US Tax Code provides certain preferential tax treatment to certain kinds of income and it also allows certain special tax deductions and tax credits for some kinds of expenses on tax returns.
Sometimes, these result in high income taxpayers not paying what is termed "their fair share of taxes". In fact, prior to the enactment of the Alternative Minimum Tax legislation, there were situations that high tax earning taxpayers had lower tax rates than the average middle class taxpayers!
Thus, Congress attempted to correct this anomaly by creating the Alternative Minimum Tax. The alternative minimum tax "attempts to ensure that all taxpayer who benefit from these tax advantages will pay at least a minimum amount of tax on their tax return."
The alternative minimum tax "is a separate tax computation that, in effect, reduces the tax benefit of certain tax deductions and tax credits on your tax return, thus creating a tax liability for the taxpayer who would otherwise pay little or no tax on his/her tax return."
This mechanism it was thought, by the infinite wisdom of Congress would correct the problem of high income taxpayers not paying their fair share of the taxes.
Unfortunately, as the years went by subsequent to the passage of the AMT Tax into law, more and more middle class families are finding out that they are subject to the alternative minimum tax on their tax returns! This is totally contrary to what was "originally designed to charge an additional tax on certain tax preference items commonly deducted by the rich on their tax returns."
Now, Congress has been reluctant to act upon this insidious tax that is creeping rapidly into the Middle Class Families. They are clearly being penalized very hard especially during todays difficult financial times.