More than 20 million taxpayers will escape the alternative minimum tax this year, thanks to a stopgap measure Congress approved. But lawmakers waited so late in the year to vote that many early filers could have to wait until March to get their refunds.
About 4 million taxpayers owed the AMT in 2006. As a result of the temporary fix, about the same number of taxpayers will owe the AMT for 2007, says Clint Stretch, managing principal for tax policy at Deloitte Tax in Washington.
The AMT is a parallel tax system that eliminates many popular deductions and credits, resulting in a higher tax bill. It was originally intended to prevent wealthy taxpayers from using loopholes and deductions to avoid paying any taxes. But because it was never indexed to inflation, it’s gradually expanded to ensnare even middle-class taxpayers who live in high-tax states or have many children.
Ordinarily, the IRS starts processing tax returns in mid-January. But the schedule will be delayed this time because the IRS will need about seven weeks to reprogram its computers to reflect changes in the tax law.
That means millions of taxpayers who file their returns in late January and early February will likely end up waiting four weeks longer than usual for their refunds, says Chrys Sullivan, assistant vice president for client services at H&R Block, the nation’s largest tax-preparation chain. Taxpayers who file electronically usually receive their refunds in about two weeks.
IRS spokesman Terry Lemons said Wednesday that it’s too soon to estimate how many refunds will be delayed or how long the delays will last. The IRS “will do everything in our power to minimize delays,” Lemons said.
In November, the IRS Oversight Board told Congress that a late-in-the-year passage of the AMT fix could delay nearly 38 million refunds, worth about $87 billion.
“Those of us who wait until April 15 to file an extension are not going to be affected,” Stretch said. “But it will be very annoying for people who thought they were going to get a refund in late January or early February to pay their Christmas bills.”
Without the fix, more than 20 million taxpayers would have seen their taxes increase by an average of $2,000.
“This year, the long arm of the AMT won’t reach out and touch taxpayers who were never meant to pay it,” Senate Finance Committee Chairman Max Baucus, D-Mont., said in a statement.
House Democrats insisted that Congress offset the $50 billion cost of the AMT fix by closing offshore tax loopholes. But Republicans blocked legislation with a tax increase from coming up for a vote in the Senate, and President Bush threatened to veto any legislation that included a tax increase.
The House agreed Wednesday to the Senate version of the bill, which imposes the temporary fix but doesn’t pay for it. Bush is expected to sign the bill.
