2009 AMT Tax Brackets

March 10, 2009 by TFB

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.

Software picked, likely related posts:

Keywords:
Filed under: Taxes | Leave a comment

Comments

7 Comments on 2009 AMT Tax Brackets

  1. Random Poster on March 10, 2009 | permalink
    2.  

    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 on March 10, 2009 | permalink
    3.  

    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. TFB on March 10, 2009 | permalink
    4.  

    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 on March 10, 2009 | permalink
    5.  

    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 on March 11, 2009 | permalink
    6.  

    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 on March 12, 2009 | permalink
    7.  

    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 on April 14, 2009 | permalink
    8.  

    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.

Tell me what you're thinking, but please don't spam. See comments moderation policy.