OT but important for everyone

What is the name of your state? Federal issue

This doesn't belong here, but this is a message that I want to get out to as many people as possible, and the tax forum won't cut it.

This is regarding federal income taxes.

There is something out there called Alternative Minimum Tax. (AMT) It is an alternate method of calculating federal income tax, completely different than the standard method. AMT was originally designed to insure that relatively wealthy people had to pay some income tax, no matter how many deductions they had. However, it was never indexed for inflation. Basically it means that taxpayers over a certain level of income have to figure their taxes both ways, and pay whichever way comes out higher.

Some years back, Congress temporarily put a "fix" in place to index AMT for inflation, which means that most people out there were never effected by AMT. However that temporary fix expired for 2007. Congress knows that its a huge problem, but due to partisan politics, they have not fixed the problem.

As a result, for 2007, single people with incomes above 33k and married couples with incomes above 45k are subject to AMT. That means that on the average, if AMT triggers, those people could owe an average of 2k more in taxes for 2007. Taxes that have not been withheld from their wages. Its estimated that 40% of taxpayers could be subject to AMT for 2007. (again a program that was originally designed to effect only about 5% of taxpayers).

Congress swears that they still intend to fix it for 2007...before the end of the year. However, that causes an additional and very serious problem. It takes the IRS a minimum of 10 weeks to deal with a change in tax law....and that's truly valid....and incredibly fast. Not only does the IRS have to deal with all of the internal changes, and change all of the tax forms, but the IRS also has to approve every single company's software....both the software used by professionals and all of the online software.

The IRS is threatening to delay the start of the tax season to the end of February, beginning of March as a result of this. This would have a huge impact on 60% of the taxpayers...the low income people who would never be subject to AMT, and those medium low/medium/ higher income taxpayers whose returns wouldn't trigger AMT anyway.

The valid solution to this problem is for Congress to get off their butts NOW, and for Congress to mandate that the IRS start the tax season as normal, but only delay returns for the 40% that might be subject to AMT. It would still hurt alot of families but its better than delaying the tax season in its entirety.

I don't have to explain it to a lot of you, but tons of families plan for and rely on that January/February tax refund....enough people that it could actually result in serious rioting if the tax season gets delayed.

The media has been strangely silent on this issue....perhaps because they don't understand the ramifications.

People need to contact their Senators and Congresspeople...

Thanks LD- that WOULD definitely affect me and hubby.....and I don't know where we would come up with a couple extra grand to just give away

single people with incomes above 33k

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Is this regardless of filing status because if so, this effects me also.

Just as a precaution, how do we stop this from effecting us in the future (if you know)?

IRS: 38 Million Tax Refunds Could be Delayed

Saturday, December 01, 2007

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WASHINGTON — Silena Davis had counted on an early tax refund to pay for getting her teeth fixed. Now, because Congress has dawdled all year on a tax bill, she and millions of other early filers could have to wait extra weeks for refunds that last year averaged $2,291.

The Internal Revenue Service is looking hard at delaying the start of its filing season, set to kick off on Jan. 14, if Congress fails to pass legislation in the next two weeks. At issue is how to handle what could be a dramatic increase in the number of people facing a higher alternative minimum tax.

If there is a delay and it extends into mid-February, it would slow nearly 38 million refunds worth a total of about $87 billion, the IRS Oversight Board predicts.

"It would definitely make a big difference with me," said Davis, a George Washington University Law School administrator. "I'm going to have to get a crown and it's going to be really expensive."

The board, an independent advisory group, said in a report to lawmakers last week that it is "gravely concerned about the serious risks" to the filing season if Congress does not make timely changes to the tax. They include more mistakes by both taxpayers and the IRS and more people failing to pay taxes because of uncertainty about what they owe.

The alternative minimum tax was passed in 1969 and was aimed at about 155 very wealthy families who used deductions to avoid paying any federal income tax. The AMT disallows certain deductions and credits. It was not adjusted for inflation; as a result, over the years it has hit a growing number of middle-income taxpayers.

More than 4 million were subject to it in the 2006 tax year, and that could soar to 25 million this year without congressional action.

Congress in recent years has approved one-year fixes to stop the tax from expanding. Legislation this year has stalled in a dispute between majority Democrats and the White House. The stumbling block is whether some taxes should rise to offset the cost of correcting the AMT.

Richard Spires, the deputy IRS commissioner for operations support, said in an interview that the agency is considering not processing all early returns if the AMT issue is not resolved soon.

"We are worried that if we allow certain filers to file that it does not cause a lot of confusion and delay the whole filing system for everyone," he said.

While most people are not hit by the tax, the IRS lacks a way to distinguish what returns are affected by possible changes in tax law.

The AMT, he said, involves "some of the most complex code that we deal with, right at the heart of our tax compilations."

People who file returns under the current AMT law would have to file an amended return if the law were changed. Spires also stressed that there would not be any advantage to filing by paper if the IRS is not accepting electronic returns. "We're not going to process paper returns any faster," he said.

The dispute would give the millions of people who wait until the last minute to file their returns yet one more reason to procrastinate. "If it was only two or three weeks, it wouldn't bother me at all," said Toni Mistretta, a health care worker from Jamesport, N.Y.

Some disruption already is taking place. As Congress was leaving for its Thanksgiving break with no deal in sight, the IRS was going to press with the forms for the 2007 tax year.

Spires said the agency has postponed printing the AMT form and 11 others affecting smaller tax issues that Congress has promised to deal with but has not.

The IRS has done the design work on the new forms after receiving assurances from Democratic and Republican leaders on the taxwriting committees that Congress will enact an AMT fix this year similar to legislation passed last year.

Congress returns this week. But it will take about seven weeks after a bill is passed and signed into law to do the necessary programming and testing before those forms could be presented to the public, Spires said.

H&R Block said 60 percent of its clients who claim credits using forms affected by pending legislation normally file by the end of February. A delayed refund could cause hardship for those people in paying holiday bills or addressing other immediate financial problems, according to the company.

Aides on the taxwriting committees said they were unaware, at this point, of any suggestions to extend the April 15 filing deadline if the filing season is contracted because of the AMT dilemma.

The IRS oversight board, using past agency data, said that if the start of the filing season is pushed back two weeks to Jan. 28, it would delay some 6.7 million refunds totaling $17 billion. A Feb. 18 starting date would delay 37.7 million refunds totaling $87 billion.

The report came after weeks of warnings — from President Bush, Treasury Secretary Henry Paulson and the IRS — about the consequences of failing to enact a temporary fix. Paulson said the 25 million returns that could be affected in 2007 would pay on average an additional $2,000 in federal income tax.

"This is a huge tax increase that taxpayers do not deserve and Congress must stop," Bush said Saturday in his radio address, his latest comments on the issue.

That will not be easy.

On Nov. 9, House Democrats pushed through a one-year "patch" to shield 21 million taxpayers from about $50 billion in higher taxes due to the AMT. The bill included an additional $30 billion in tax relief measures such as expanding the child tax credit and extending numerous about-to-expire tax breaks for education costs, small business and military personnel.

But, honoring their pledge not to pass legislation that adds to the federal deficit, Democrats voted to increase taxes by $80 billion in other areas, including for investment fund managers. Tax-adverse Republicans voted unanimously against the bill and Bush said he would veto any bill that included a tax increase.

In the Senate, Finance Committee Chairman Max Baucus, D-Mont., has floated a proposal to find ways to pay for the tax credits, but not the AMT fix. There was no deal with Senate Republicans before the Thanksgiving break, and it was unclear whether House Democrats — or the president — would accept Baucus' approach.

Congress' Joint Committee on Taxation estimates that, without a fix, about half of taxpayers with adjusted gross incomes in the $75,000-$100,000 range will be affected by the AMT this year.


http://www.foxnews.com/story/0,2933,314506,00.html

http://www.rallycongress.com/letter2congress/698/?gclid=COzdrPHzipACFRovQQodYDCGQA

Here is a link to email your lawmakers. Believe it or not it does make a difference if enough people respond. I'll post this on a few more boards.

Thanks for posting this. Actually CS forum is a good place because the CP's who are owed arrears might be counting on a tax refund intercept that won't happen because of this problem.

The whole thing is scary, I have no idea where my hubby and I will get the money if we fall into this mess. It's bad enough that I already owe FEMA, now I might end up owing IRS too? God, I really need a winning lottery ticket.

As an aside, and in defense of the media - the media is rarely silent, especially when it comes to reporting on the ineptness of Congress.

People don't always pay attention to what is broadcast or printed, however.

quincy said:

As an aside, and in defense of the media - the media is rarely silent, especially when it comes to reporting on the ineptness of Congress.

People don't always pay attention to what is broadcast or printed, however.

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I hate having to stick up for the media. LOL

http://www.myrtlebeachonline.com/164/story/250805.html

I have actually seen this information on several websites

So, I have a question... this won't affect me since I was unemployed for several months this year and that has a way of keeping the income rather low... but is the 33K mentioned GROSS or TAXABLE income?

LdiJ said:

As a result, for 2007, single people with incomes above 33k and married couples with incomes above 45k are subject to AMT. That means that on the average, if AMT triggers, those people could owe an average of 2k more in taxes for 2007. e...

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crap

CJane said:

So, I have a question... this won't affect me since I was unemployed for several months this year and that has a way of keeping the income rather low... but is the 33K mentioned GROSS or TAXABLE income?

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I'm screwed either way

CourtClerk said:

I'm screwed either way

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I'm sorry.

I'm in the clear til next year, at which point I will be screwed... though I'm kind of hoping for that. I'd love to not be so poor that I qualify for the EIC.

Thanks for the info. Scary

CJane said:

So, I have a question... this won't affect me since I was unemployed for several months this year and that has a way of keeping the income rather low... but is the 33K mentioned GROSS or TAXABLE income?

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Its gross income.

CourtClerk said:

Is this regardless of filing status because if so, this effects me also.

Just as a precaution, how do we stop this from effecting us in the future (if you know)?

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Yes, its regardless of filing status...any return that is not a joint return is subject to the 33k. level.

However, please understand that not everyone's returns will trigger AMT. People who itemize rather than take the standard deduction, and people over 75k (as the article mentioned) are the ones at the greatest risk of triggering AMT.

The way to avoid the problem in the future is for Congress to permanently index AMT for inflation.