The Alternative Minimum Tax was created in the 1960s to prevent a few very high-income earners to avoid income taxes all together through large deductions and credits. Taxpayers who earn over a certain amount must prepare their taxes in the standard way and they must also do so using the AMT method, which limits or eliminates certain deductions and credits. This leads to a higher adjusted gross income and therefore a higher income tax liability. But there's a problem. When the law was written the income cutoff was not indexed for inflation. Over time, more and more families were paying AMT and these were people hardly considered wealthy.
The problem is managed every year by passing an exemption which adjusts who needs to pay AMT. But this time no adjustment has been passed as the AMT adjustment is part of the stalled fiscal cliff talks. Without an adjustment, tax payers earning as little as $33,750 in 2012 may be subject to AMT at tax time. The average hit to families will be $3,700. For tax year 2011 only 4 million families paid AMT; if something doesn't change 30 million will have to pay it for this tax year.
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