Arguments and discussions that incorporate “tax brackets” are grossly misleading … not intentionally, but an “inconspicuous” tax “bracket” has taken over and supersedes the things that discussers use as “tax brackets”.
And that super tax bracket is the Alternative Minimum Tax.
Originally, the AMT was intended to snare a dozen or so super wealthy people who invested in municipal bonds whose interest is tax exempt.
Instead, now it has gotten so complicated and also NOT adjusted for inflation, that millions of middle income people are hooked and snared into it. And it is unavoidable.
If you and your spouse make together over a certain amount, then you must do the calculations.
Strongly suggest you look at IRS Form 6251 and the Instructions for IRS Form 6251.
The tax tables don’t really apply beyond a certain point.
AND, it is fun the read the form and the instructions because they are masterpieces of bafflegab. If you can figure them out, then you are a better man than I am, Gunga Din.
taxes.about.com/od/1040/a/minimum_tax.htm
en.wikipedia.org/wiki/Alternative_Minimum_Tax
Significant excerpt:
Growth of the AMT
Although
the AMT was originally enacted to target 155 high-income households, it now affects millions of middle-income families each year.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;[20]
by 2008, the number of affected taxpayers jumped to 3.9 million, or about 4% of individual taxpayers.[52] A total of
27% of households that paid the AMT in 2008 had adjusted gross income of $200,000 or less.[53]
The primary reason for AMT growth is the fact that the AMT exemption, unlike regular income tax items, is not indexed to inflation. This means that income thresholds do not keep pace with the cost of living.[54] As a result, the tax affects an increasing number of households each year, as workers’ incomes adjust to inflation and surpass AMT eligibility levels. While not indexed for inflation, Congress has often passed short term increases in exemption amounts. The Tax Policy Center (a research group) estimated that if the AMT had been indexed to inflation in 1985, and if the Bush tax cuts had not gone into effect, only 300,000 taxpayers—instead of their projected 27 million—would be subject to the tax in 2010.[55] President Barack Obama included indexing the AMT to inflation in his FY2011 budget proposal, which did not pass. AMT raised $26 Billion of $1,031 Billion total individual income tax in 2008.[52]
Another important reason for the recent expansion of the AMT is the effect of the 2001–2006 Bush tax cuts.[54] The tax cuts decreased marginal tax rates for all income tax brackets without making corresponding changes to AMT rates. The lower tax liabilities triggered AMT eligibility for many households, eliminating the incentive effect of the tax cuts and subjecting more households to the tax. Economists often refer to this as the “take-back effect” of the Bush tax cuts.[20]
As the AMT has expanded, the inequalities created by the structure of the tax have become more apparent. Taxpayers are not allowed to deduct state and local taxes in calculating their AMT liability; as a result, taxpayers who live in states with high income tax rates are up to 7 times more likely to pay the AMT than those who live in states with lower income tax taxes.[56] Similarly, taxpayers are not allowed to deduct personal exemptions in calculating their AMT liability; as a result, taxpayers with large families—and specifically families with 3 or more children—are more likely to pay the AMT than smaller families.[57]
