AMT Tax Exemption Increased - Processing of Some Tax Returns Delayed

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What is the AMT?

The Alternative Minimum Tax (AMT) is a parallel income tax system, implemented in 1969, designed to prevent 155 wealthy Americans from aggressively using tax credits, deductions and legal tax shelters as tools to help them avoid having to pay federal income tax.

The AMT has become a topic of heated discussion among taxpayers and lawmakers alike because the AMT now reaches into the pockets of the middle-class. Regular income tax brackets are indexed for inflation, but AMT thresholds are not. Thus far, the full effects of the AMT have been deferred by Congress enacting a series of temporary patches — boosting the amount of the AMT exemption. However, the last temporary fix expired at the end of 2006.

Congress Passes AMT "Fix" for Tax Year 2007

Auspiciously, the day before adjourning for Winter Break, Congress passed another one year fix - adverting higher taxes for the majority of middle-income America facing the dreaded Alternative Minimum Tax (AMT). The Senate version of the bill, which does not compensate for a $50 billion loss of tax revenue, won majority favor and was signed into law by President Bush.

The passage of this legislation boosts the AMT exemption and extends a number of credits. In 2006, approximately 4 million households were required to pay the AMT. Without ratification of another provisional one-year patch to boost the amount of the AMT exemption, an additional 20 million households would have had to have paid an estimated average of $2,000 more in federal taxes for 2007. Another 27 million filers, who claim a variety of credits closely connected to the AMT (i.e. child and dependent care, education, residential energy and state/local taxes), were also in danger of feeling the AMT pinch.

Will the AMT delay my return from being processed?

Speculation the start of this tax season would be delayed has been addressed by the IRS: The 2007 tax season will start on time for everyone except a small portion of taxpayers.

To ensure the fewest number of taxpayers would incur processing delays, the IRS has reprogrammed its systems to reflect the new law for 7 of the 12 forms. The IRS has targeted Feb. 11 as the potential processing date for taxpayers impacted by the remaining 5 forms. Those 5 forms include:

• Form 8863 – Education Credits
• Form 5695 – Residential Energy Credits
• Form 1040-A, Schedule 2 – Child and Dependent Care Credit
• Form 8396 – Mortgage Interest Credit
• Form 8859 – District of Columbia First-Time Homebuyer Credit

What can I do?

The best advice a taxpayer can follow this year: use e-file.

For a number of years, the percentage of filers submitting their tax return electronically to the IRS has shown increases in the double digits largely because it's convenient, secure and reduces the opportunities for common filer mistakes. But those who e-file their tax return also receive "Proof of Filing" which is an acknowledgement issued to the filer reflecting when the IRS received and accepted the return. Conversely, if an error is detected, the IRS can communicate the problem fast – even pinpointing the location of the error in the tax return.

Prepare and E-file Your Tax Return with TaxACT—We'll Take Care of the Rest

We encourage our customers who use e-file to enter their tax data into TaxACT® and submit their electronic return as they would normally - TaxACT is current and up-to-date. As soon as the IRS begins accepting returns, TaxACT returns will be processed. TaxACT customers can rest easy knowing no other method will help them to get a faster tax refund - in as few as 8 days. (1)

To get a clear picture of the AMT's impact on your return or for more information regarding TaxACT, visit www.TaxACT.com today and starting your free Standard tax return.

(1) In general, the IRS estimates it takes 8-15 days for taxpayers who use e-file and direct deposit to receive their federal tax refund from an accepted tax return. Some IRS processing delays may occur for tax year 2007.

As a practical note, taxpayers are encouraged to consult a legal or tax professional if in doubt. TaxACT provides general guidance and not legal or specific tax advice.