2009 AMT Tax Brackets

The stimulus law American Recovery and Reinvestment Act of 2009 included a modest increase in Alternative Minimum Tax (AMT) exemption amounts for 2009 tax year compared to the same amounts for 2008. They typically do this kind of patch close to the end of the year. They were early this year. With the exemption phaseout, the AMT tax brackets for 2009 become:

Married Filing Jointly Single or Head of Household AMT Income QD & LTCG*
$0 – $70,950 $0 – $46,700 0% 0%/15%
$70,951 – $150,000 $46,701 – $112,500 26% 15%
$150,001 – $226,760 $112,501 – $199,860 32.5% 21.5%
$226,761 – $433,800 $199,861 – $299,300 35% 22%
$433,801 or more $299,301 or more 28% 15%

* Qualified Dividends and Long Term Capital Gains

Compared to the 2008 AMT brackets, the amounts changed very little. The two rows in red are the phaseout zones. They are penalized for having a comfortable, but not rich, income. For more information on how these numbers are calculated, please read the previous post 2007 Tax Year AMT Brackets.

I repeat what I wrote before about my problems with the AMT:

First notice the marriage penalty. If each spouse earns $80,000, a married couple is in the 32.5% bracket. If they were single, they are in the 26% bracket. That’s a big difference in tax rate. Throw in the state income tax and Social Security and Medicare tax, the couple’s combined marginal tax rate can reach close to 50%. $80k per spouse is also about the point where eligibility for Roth IRA starts to go away, whereas they have more breathing room if they were single. Do we want gender pay equity and stable family or not? We want our skilled workforce to earn good money. That makes education worthwhile. $80,000 is a good income, but by no means “rich.” I don’t know why we want to tax them at 50% for each additional dollar they earn.

Also notice the significant penalty on qualified dividends and long term capital gains for people in the phaseout zones . Together with state income tax, the marginal tax rate on qualified dividends and long term capital gains can exceed 30%. That’s double the 15% number everybody talks about.

What do you do if you are affected by the AMT, or worse yet, if you are in the AMT exemption phaseout zones? Not much unless you are willing to move to a low/no tax state or not have kids. Know what your marginal tax rate really is. Maximize traditional 401k contributions to get your taxable income down. Make your taxable investments super tax efficient. Minimize even qualified dividends and long term capital gains.

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Comments

  1. Random Poster says

    Maybe I’m missing something, but why is the AMT tax bracket for those earning more than $433,801 / $299,301 (married filing jointly / single or head of household) substantially *lower* than those earning less?

    I know in that in your 2008 post on the subject, you state that “For people who are outside of the top phase-out range, they may not pay AMT any more. Their regular tax bracket may be higher than their AMT bracket.”

    Well, that may be, but doesn’t that simply perpetuate the reach of the AMT on the middle class, while allowing the truly rich to pay less taxes? And isn’t that completely contrary to what the AMT is/was intended to do?

  2. RobertSeattle says

    I’m no accountant, but Income of 80K, Single, no deductions, I calculate a Federal Income Tax $14,000. Income of 160K, Married filing joint, no deductions, I calcualte Federal Income Tax of $28,198 so there is a $198 marriage penalty in these apple-to-apple scenarios. Interesting.

  3. Harry Sit says

    Random Poster – I’m not sure if you are asking mechanically why or logically why. Mechanically, when you are in AMT, you are given an AMT exemption amount. As your income goes up, you start to lose a part of that exemption amount. Losing the exemption makes your marginal tax rate higher. At $433,801/$299,301, you exhaust all the exemption. There’s nothing to lose any more. Then your tax rate drops down. Logically why? I don’t know. Congress made the law that way.

  4. SJ says

    Interesting… wow did not know the marriage penalty was that large;
    So AMT includes all forms of income? Also did not know that haha…

  5. heho says

    Married couple have pooled expenses, like a house. Their housing cost are not double of what singles have. So with combined income and pooled expenses, the feel rich factor is more. I don’t see why few extra hundered dollars are considered marriage penalty.

  6. shawn says

    Many people with pooled/shared expenses are taxed at the “single” rate (e.g., roommates, unmarried couples living together). They are, if you will, “richer” than if they lived alone. There is no reason married individuals should be treated differently (and I’m single).

    The marriage penalty is significant for most couples and most tax levels. But if the cost is small, as some people claim, then why complicate the tax laws by having different rates based on marital status? If outcome A is about the same as outcome B, but A is simple and B is complex, why impose B?

  7. JK says

    RobertSeattle-The Marriage Penalty is $3,244 in the situation you presented not $198.
    I agree with Shawn. The reason people are upset is that if you live together you would pay $3,000 less in taxes than if married.

  8. Mark says

    I’m married and last year I didn’t have to pay AMT. This year our income didn’t change by much but I now have to pay AMT. So any extra income Obama threw in our paychecks is going right back to him in April. I would have not accepted his lousy gift since he is just an Indian giver!

    I thought AMT was for millionaires. I’m now paying AMT so show me my mansion, yacht, and lear jet!

  9. some miss the point says

    Some are missung the point about the marriage penalty, it;s a double dip. Not only is the tax rate higher, but you also lose deductions. So someone like me with six kids, pays more and has loses those deductions. Also the rate dropping after $433K is totally inconsistent with the ability to pay theory that our tax code is founded on. So again, the aristocracy in congress, are hypocrits. Why does this happen? Take a look at their tax returns, it’s public record, most are millionaires, and if yo uhad a lot of money, and you passed the laws, who would you tax? Yourself? or The people that elected you and you are supposed to represent?

  10. jim says

    I have been falling under the AMT for the last several years. I have two kids (not six !), nonetheless, I live in Long Island where my property taxes are quite substantial for a modest house. My wife and I are quite hard working and i find it very disheartening to loose nearly 50% of my pay to “taxes” whether it be state, local or federal in nature. My principals have stopped me from forming a Limited Partnership or corporation, but now I am starting to feel quite strongly about protecting the money i earn for my wife and family. I am wondering what my options are.

  11. J. Simmons says

    If I end up having to pay this tax because my spouise and I make 200K/year, while some trailor park skank can stay home and collect a tax free welfare check, I’m going to go absolutely postal. This country is unbelievable, keep penalizing us for educating ourselves, working hard, and keeping this economy afloat. Who in the hell is running this show?!

  12. JD says

    We live in Illinois, pay state income tax and high real estate tax, and have been hit with amt for last 4 years. It really is the state and real estate tax exclusion from the amt calculation that causes us to go into the amt rate at 35% (our income is in the $250 range. We are married with 3 children (2 in college) and nearing 50. I am quessing we’re in the same income tax bracket at Oprah….hmmm. If there’s going to be a progressive tax system, then spread it out.

  13. XP says

    The AMT was supposed to be aimed at the wealthy who don’t make their money from a regular job and claim too many deductions, costing society. Since they live in this great society and have prospered beyond what they reasonably need to survive, it seems fair that they give back to this society that made them wealthy so that others can go to school, roads can be maintained, and small businesses can grow into bigger ones and the whole of society is brought up, etc. But in this country that is seen as a bad thing. And now the AMT has been brought down on the middle class. You can thank both of the major parties for this…they are equally guilty because they are all politicians for the wealthy…a plutocracy that aggressively protects the plutonomy that they have created. Its not fair, I know. But TIA (this is America). This is what we said we wanted through our votes and hatred for taxes. Deal with it.

  14. taxed says

    Looks like it is a great idea for married couples to get a legal divorce and still live together (not sure whether my spouse would agree to it!)

  15. Matt says

    A bit late to the party, but while there are complaints about marriage penalties in taxes, we have other subsidies for married couples that single people do not get.

    Health insurance is a good example. Family/couples policies are usually cheaper per person than single person rates.

    Also, married couples can transfer wealth to each other without gift or estate taxes. Things like survivor benefits for pensions and social security are also designed for married couple and singles cannot benefit similarly.

    So it’s important to consider the full cash-flow statements related to married vs. single.

    But there’s no debate that the AMT is designed to tax people who have children, own their homes, and live states with high local taxes. This is particularly why it hits the middle class hardest. In fact, the wealthiest don’t pay the AMT at all since the tend not to trigger it due to their high taxes in the regular tax system.

    So in essence, the AMT is a tax for the upper middle class and not the wealthiest among us. Ironic.

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