On Wednesday, the House of Representatives passed to extend the Middle-Class Alternative Minimum Tax Relief Act through 2005 by a bipartisan vote of 333-89.
The Alternative Minimum Tax (AMT) is supposed to target the most prosperous of Americans to ensure they pay taxes. Instead, the AMT too often hits middle-income American families because tax rates have not been adjusted for inflation since 1993. This bill expands the standard deductions for the AMT to $40,250 for individuals and $58,000 for married couples.
"I'm glad the House took another positive step toward helping American families keep more of what they earn," said J. Dennis Hastert, Office of House Speaker.
While other tax brackets, exemptions and standard deductions are annually adjusted for inflation, the AMT brackets and exemptions are not. As a result, more and more middle-income families hit the AMT zone and are forced to pay these additional taxes each year. The bill must still pass the Senate before it can become law.
If the Middle-Class Alternative Minimum Tax Relief Act, which passed this week does not become law:
- The current exemption amounts increased in 2001 and 2003 will automatically fall to $45,000 from $58,000 for married couples, and to $33,750 from $40,250 for single taxpayers -- a tax increase on 8 million middle-income American families and individuals.
- 11 million taxpayers will be hit with an average tax increase of $1,520.
The White House estimates that 9 million more taxpayers can expect to pay the alternative minimum tax next year unless lawmakers act. The Tax Policy Center calculated that as many as 12 million more individuals and families could get hit with the tax if lawmakers extend tax cuts scheduled to expire at the end of the year but do not address the alternative minimum tax.
Three tax cuts are to expire at the end of the year. They expanded the bottom tax bracket, reduced the marriage penalty and increased the child tax credit.