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.