Alternative Minimum Tax (AMT)

What is it?
The alternative minimum tax is designed to prevent taxpayers from escaping a fair share of taxes by using certain tax breaks.

What's changing?
The tax cut allows the child tax credit and earned income credit to be used to reduce or eliminate any AMT liability that may exist. The new law also provides temporary relief from the effect of AMT by increasing the AMT exemption amount by $2,000 ($4,000 for married filing jointly) for tax years 2001-2006.

What does it mean to me?
Most people are not affected by the AMT. However, that number is expected to rise from 1.5 million in 2001 to over 30 million in 2010. The tax cut provides only a temporary fix to the number of people affected by the AMT.

The Details ...

The 2001 Act has several provisions regarding AMT:

Allows the child tax credit to offset AMT liability.
Allows the earned income credit to offset AMT liability.
Temporarily ameliorates the effect of AMT by increasing the AMT exemption amount by $2,000 ($4,000 MFJ) for tax years 2001–2006. The change is effective in 2001 and is repealed for tax years after 2004.

The AMT exemption has not been adjusted since 1993. The proposed increase of the exemption will slightly reduce the number of taxpayers who are subject to the alternative minimum tax and will reduce the amount of AMT paid by those taxpayer who are remain subject to it.