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Personal Finance

AMT Problem Looms Over Fiscal Cliff Debate

If left unpatched, a provision designed to keep the wealthy from avoiding taxes could also raise tax bills for millions of middle-income households.

For many taxpayers, the AMT, or alternative minimum tax, has always been a vaguely understood feature of the federal income tax system with no real effect on their lives. But that may be about to change. Unless Congress fixes it, the AMT will ensnare about 33 million U.S. taxpayers--or one out of every five--for the 2012 tax year, including 28 million who normally wouldn't be subject to it, according to the Internal Revenue Service. About 4.3 million paid the AMT in 2011, according to estimates from the Tax Policy Center.

Based on the center's calculations, nearly half of those newly hit by the AMT will be taxpayers with adjusted gross incomes between $100,000 and $200,000, who will pay $2,868 more on average as a result of the tax. Millions more with adjusted gross incomes between $75,000 and $100,000 will also feel the sting for the first time to the tune of $1,350 extra in taxes on average, while those newly subject to the AMT and with adjusted gross incomes between $200,000 and $500,000 will pay an extra $6,093. Some taxpayers outside these ranges also will have to pay the AMT for the first time. Those who had already been paying the AMT are likely to see their tax bills get worse, as well.