What is the AMT?

The Alternative Minimum Tax is a flat income tax with two brackets, 26% for individuals and 28% for married couples, that does not allow certain deductions for dependents, medical expenses, or state or local taxes. Taxpayers are obligated to pay the AMT if it is higher than their regular tax rate. About five million people paid the AMT last year.

What’s the problem?

The AMT is not indexed to inflation, and as such, Congress has passed yearly patches to the AMT to prevent millions of middle income taxpayers from paying the tax. This year, however, Congress has not passed legislation to adjust the AMT to inflation. The inflation patch is expected to cost approximately $100 billion.

How will this affect 2012 tax returns?

According to the Congressional Budget Office, without an inflation patch passed by Congress, more than 26 million households will pay an average of $3,700 more in taxes for 2012. Congress is currently considering passing an AMT inflation patch as part of a deal to avert the so-called fiscal cliff.