AMT Relief: It's Official

House votes relief without offsets

By Kaye A. Thomas
Posted December 20, 2007

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Democrats abandon bid to prevent deficit increase.

Acting on the last day of this year's session of Congress, the House of Representatives gave final approval to legislation that prevents expanded reach for the alternative minimum tax, or AMT. The White House announced President Bush will sign the legislation.

There was broad agreement in both parties that this "patch" to the AMT was needed, but a bitter dispute over whether the legislation should also include offsets: measures to replace revenue the government would have collected in the absence of this relief. Republicans referred to the offsets as tax increases and argued that expanded application of the AMT was never intended. Democrats argued that looming budget shortfalls require the discipline of pay-as-you-go rules, known as paygo for short, and proposed offsets that would have eliminated certain techniques used primarily by wealthy investment managers to avoid tax on compensation income. Republicans filibustered to prevent Senate consideration of a budget-balanced version of the legislation, and House Democrats reluctantly agreed to set aside the paygo rules and approve a version that was stripped of offsets.

The legislation includes two provisions to protect taxpayers from the AMT. One extends a rule that prevents the AMT from taking away certain tax credits, such as the Hope credit and lifetime learning credit, both of which relate to higher education costs. The other increases the AMT exemption amount, a deduction allowed in the AMT calculation as a way to make this tax apply only to higher-income taxpayers. During the years President Bush has been in office Congress has gradually increased this deduction, but each increase has been temporary. Without the new legislation, the AMT exemption amount for 2007 would have fallen back to a level set in 1993. Now this deduction will instead increase somewhat from the 2006 level. For married couples filing jointly, the figure for 2007 will be $66,250; for singles the number is $44,350.

The IRS must now scramble to post changes in tax forms and reprogram their computers for the filing season that is about to start. The late action by Congress is expected to result in delayed tax refunds for early filers.

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