AMT – Permanently Patched

February 22, 2013

Do you have any clients that may have been subject to the Alternative Minimum Tax (AMT) in past years?

The following blog will discuss how recent changes to the AMT might positively affect these clients going forward.

I'm sure many of you celebrated your New Year's Eve well into the early hours of 2013, or like me, a quiet evening at home with my wife and Shih Tzu dog, Molli, desperately trying to stay awake until midnight – which we did! Unfortunately, the welcoming of 2013 means for the higher earning taxpayers increased income tax rates, and increased capital gains and qualified dividend rates. For all others, the expiration of the 2% payroll tax holiday. However, there was also great news; the federal estate and gift exclusion of $5,000,000, indexed to inflation, was made permanent. Also, thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), the AMT exemption amount was increased, indexed to inflation, and made permanent, retroactive to 2012. According to a study conducted in 2011, if Congress took no action more than 31 million taxpayers will be subject to AMT.* Originally created in 1969, the dreaded AMT, commonly known as the "millionaire's tax", was created to prevent high income earners from using too many tax related loopholes then available to avoid paying federal income taxes. Unfortunately, the old exemption amount ($45,000 for married joint filers, $33,750 for single filers and $22,500 for married separate filers) was not automatically indexed for inflation. Hundreds of thousands of middle-class taxpayers became subject to AMT over the years as their median income grew.

The exemption amounts for 2012 and inflation adjusted amounts for 2013 are:

Filing Status 2012 AMT Exemption
2013 AMT Exemption
Married Joing / Surviving Spouce
$78,750 $80,800
Single / Head of Household $50,600 $51,900
Married Separate $39,375

We will most likely see many more legislative changes in 2013.

The Retirement Strategies Group closely monitors activity and will continue to provide updates. Should you have any questions, don't hesitate to contact any of us for more information.



Picture of Steve Chmelka

Steve is a Senior Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. He brings more than 25 years of industry experience in financial planning and wealth management, including detailed knowledge of both employer-sponsored retirement plans and retirement-planning strategies.

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