The problem is not just about indexing for inflation
The problem with the current AMT is not just that it's not indexed for inflation. It's also about tax credits.
Without all these yearly patches, the AMT reverts to what was originally in the code. And that says that a number of out favorite credits, such as the child care credit, apply to regular taxes but not to AMT. The flow on our current 1040 form is compute regular taxes, compute AMT, take the larger, reduce by all the credits, and that's your tax. Now go back at look at a 1040 form from the 90's. The flow is compute regular taxes, reduce by tax credits, compute AMT, and go from there.
The IRS had several scenarios, which are now on the NATP site, which illustrate this. The first one is a single parent filing HoH with two kids, $50K in wages, standard deduction, and $6K of child care. He is NOT subject to AMT either with or without the AMT patch. But without the patch his child care credit is only $11, versus the full $1200 with the patch. That's a tax swing of $1,189.
The problem with the current AMT is not just that it's not indexed for inflation. It's also about tax credits.
Without all these yearly patches, the AMT reverts to what was originally in the code. And that says that a number of out favorite credits, such as the child care credit, apply to regular taxes but not to AMT. The flow on our current 1040 form is compute regular taxes, compute AMT, take the larger, reduce by all the credits, and that's your tax. Now go back at look at a 1040 form from the 90's. The flow is compute regular taxes, reduce by tax credits, compute AMT, and go from there.
The IRS had several scenarios, which are now on the NATP site, which illustrate this. The first one is a single parent filing HoH with two kids, $50K in wages, standard deduction, and $6K of child care. He is NOT subject to AMT either with or without the AMT patch. But without the patch his child care credit is only $11, versus the full $1200 with the patch. That's a tax swing of $1,189.
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