WASHINGTON — Congress gave final approval Wednesday to a bill that would protect about 20 million households from a tax increase caused by the alternative minimum tax, but the legislation passed so late in the year that 15 million Americans will probably have to wait longer than usual to get their refunds in 2008.
The House voted 352-64 to prevent middle- and upper-middle-income taxpayers from being hit by the AMT, which was designed in 1969 to target only the very rich.
President Bush was expected to quickly sign the measure.
The Internal Revenue Service had urged lawmakers to act sooner, warning that the longer they waited to “patch” the AMT, the more disruption taxpayers would encounter when they filed their 2007 tax returns. The rules governing the AMT affect not just people who are forced to pay the levy but also almost all taxpayers who itemize deductions.
The IRS has said it needs seven weeks from the patch’s enactment to adjust its computers to the change. Given the lag time, as many as 15.5 million tax refunds totaling $39 billion will be delayed next year, the IRS’s oversight board estimated. In other words, 11 percent of 140 million filers will probably have to wait a little longer to get their money back from Uncle Sam.
“The filing season usually starts the second week in January,” said William Fleming of PricewaterhouseCoopers, an accounting firm.
But the lag in passing the patch, he said, “could cause a delay in early filing by as long as a month and a delay in getting refunds by the same period of time.”
Still, lawmakers said they were glad to have finally repaired the AMT, at least for this year, and thus avoid the larger problem of imposing a tax increase on people who were never supposed to receive one.
The AMT imposes an average $2,000 tax increase on households that are required to pay it.
Democrats had promised all year not just to fix the AMT but also to pay for revenue losses connected with the change, pledging to make up the patch’s $50 billion loss by raising taxes or cutting spending.
But they relented after the Senate twice rejected a House-passed AMT patch that would have been paid for by closing down offshore tax havens or by increasing the tax rate on managers of hedge funds and private-equity firms.
The Senate’s refusal to accept the tax increases followed an extensive lobbying campaign that involved not just Wall Street firms but also the real estate industry, whose managers also would have had to pay a higher tax rate.
Had the patch not been approved, 81 percent of taxpayers with taxable incomes between $100,000 and $200,000 would have been hit by the AMT, according to the congressional Joint Committee on Taxation.
Nearly half of taxpayers who earn between $75,000 and $100,000 also would also have been affected without Wednesday’s legislation.
The AMT was meant to prevent the very wealthy from using deductions, credits and other shelters to avoid paying taxes. But its income thresholds did not rise with inflation, gradually bringing more and more middle-income taxpayers into its net.
Congress next year must patch the AMT again or force millions of families to pay more tax. The patch’s revenue loss then will rise to $65 billion.
