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Alternative Minimum Tax (AMT) and US Expat Taxes

Many expats realize when they file their taxes that they don’t owe quite as much as they thought they would.  In order to protect abuse of the many available deductions and exclusions, the IRS has an Alternative Minimum Tax (AMT) in place.   The IRS recently issued a series of important updates about AMT, and many of our overseas clients are affected by this information.  

Before we delve into the AMT, let’s take a brief look at its history.  The Alternative Minimum Tax was first imposed by the IRS in 1969 to prevent high income taxpayers from avoiding tax liability altogether by claiming all of the deductions and exemptions possible. Although the AMT was originally enacted to target 155 high-income households, it now affects millions of families each year. The number of households that pay the tax has increased significantly in the last decade: In 1997, for example, 605,000 taxpayers paid the AMT; by 2008, the number of affected taxpayers jumped to 3.9 million, or about 4% of individual taxpayers. A total of 27% of households that paid the AMT in 2008 had adjusted gross income of $200,000 or less.



AMT is not  Adjusted with Inflation

While many aspects of IRS taxation are adjusted for inflation, the AMT is not.  During certain times of economic fluctuation, middle class taxpayers may find they are subject to the AMT.  Citizens who are at high risk of an imposition of AMT are expats, and this is due largely in part to the many deductions and exclusions available to expats.

For what Exemptions am I Eligible under the Alternative Minimum Tax on my Expat Tax Return?

The IRS offers varied exemption rates for different filing statuses.  In the event you are responsible for the AMT, you will be able to claim a certain amount of exemptions depending on your filing status.  These statutes were last updated in 2010, and they are:


  • $47,450 for singles and heads of household;

  • $36,225 for a married person filing separately;

  • $72,450 for a married couple filing a joint return and qualifying widows and  widowers.


More Details on the Alternative Minimum Tax

Use the IRS AMT Assistant to determine whether you may be subject to the AMT. Taxpayers can find more information about the Alternative Minimum Tax and how it impacts them by accessing IRS Form 6251, Alternative Minimum Tax —Individuals, and its instructions at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).


Links:

AMT Assistant

IRS Form 6251, Alternative Minimum Tax—Individuals