IRS Acting Commissioner Steven T. Miller warned Congress on Wednesday that if lawmakers fail to extend the traditional alternative minimum tax patch, up to 100 million American taxpayers could be affected, and most taxpayers might not be able to file their tax returns until late March 2013 or later. Failure to patch the AMT which has been done for several years as a matter of course will keep Americans from getting their refunds for up to several months. Tax forms, instructions, and software has to be modified to administer the tax system. It is not an instantaneous process.
The vast majority of returns filed in the early months have refunds, which not only has a stimulus feature, but could literally keep some unemployed Americans in their homes. For example, in 2010 around 129.3 million returns were filed with 93.4 being electronic and around 150 million are expected for 2012 with approximately 108 million at least being electronic. (The total number of returns is optimistic and the percentage of the total returns at 72 is pessimistic).
This is just one more potential disruption to the economy being caused by continuous kicking of the can down the road coupled with political brinksmanship instead of statesmanship. That is one of the factors already cited in the recent United States debt downgrade by S&P.
Other Potential Issues
Other potentially expiring items that could cause programing and printing delays include deductions for school teachers who pay for classroom materials out of pocket to help their students in struggling districts, and the deduction for sales taxes in states that have no state income tax.
The Omnibus Budget Reconciliation Acts of 1990 and 1993 raised the AMT rate to 24% from the prior level of 21% and then to 26% for singles and 28% for married couples, respectively. Now, some taxpayers who do not have very high incomes or participate in numerous special tax benefits and/or activities will pay the AMT. For years since then, Congress has passed one-year “patches” aimed at minimizing the impact of the tax. While not automatically indexed for inflation, the exemption has been increased by Congress many times. In addition, the tax rate was increased for individuals effective 1991 and 1993, and the tax was limited for capital gains and qualifying dividends in 2003. For the 2007 tax year, the patch was passed on December 20, 2007, but only after the IRS had already designed its forms for 2007. The IRS had to reprogram its forms to accommodate the law change.