Middle-class taxpayers in danger of $3,000 tax hike in 2008
by JESSICA L. FINCH Associate Editor

Rep. Thomas Reynolds, R-Amherst, proposes legislation on Monday at Williamsville Village Hall that would save middle-class taxpayers more than $3,000. His concerns on AMT are supported by CPA's Jim T. Keefe, left, and Joe M. Falbo Jr. Photo by John Rusac Purchase photos at www.BeeNews.com

A potential tax increase in the $3,000 range is threatening middle class incomes, and Rep. Thomas Reynolds, R-Amherst, says he has a solution for it.

The alternative minimum tax outline poses a potential $3,842 tax increase for some Erie County residents in 2007.

Created nearly 30 years ago, the AMT does not consider inflation and could cause the hefty tax increase for household incomes in the $65,000 range.

A bill was passed in 2005 to protect middle-class residents from the AMT during this current 2006 tax season.

"The alternative minimum tax - or, as I like to call it, the stealth tax - has Western New York's middle-class taxpayers squarely in its sights," Reynolds said during a press conference at Williamsville Village Hall on Monday. "We must begin this fight now so we can give middle-class taxpayers a relief for this year."

As a member of the tax-writing House Ways and Means Committee, Reynolds is introducing legislation that would provide relief from the AMT for many residents.

His office estimates that without the passage of this legislation, the AMT would affect 20 million residents in the United States, an increase of 16 million from 2006.

Reynolds had a law passed successfully in 2005 to protect 15 million taxpayers. While he acknowledges the need for a permanent solution, his focus is on 2007.

According to Reynolds' office, if the law doesn't pass, then AMT numbers would revert back to 2000 levels, making those above the exemption cutoff - $33,750 for singles and $45,000 for joint returns - responsible for paying the tax.

Reynolds said he wants the exemption level to be $45,100 for singles and $66,400 for joint filers in 2007.

The tax has been referred to as "stealth" because many residents who have to pay it didn't know of the possibility until it was too late.

Jim T. Keefe, a certified public accountant with The Bonadio Group, said when the alternative minimum tax was established, it only affected the upper class, but because inflation rates are not applied, the percentage has moved into the middle class.

He said a joint income of $62,550 faces the AMT, but had inflation been applied over the 28 years, a household would have to be making $90,000 to face the tax.

During the press conference, it was explained that taxpayers are pushed into the AMT through five categories - living in areas with high state and local taxes, number of children, areas with high income (urban districts with relatively high incomes of $100,000 to $500,000), use of other deductibles and exemptions, and income earned outside adjusted gross income.

Taxpayers with dependent children are not allowed to use that as a deduction for AMT. Also, the AMT disallows many deductions and exemptions that are allowed by the regular tax income, including unreimbursed business expenses and certain medical and dental expenses.

Reynolds said he would be introducing the law in Congress this week. In December 2005, the "Stealth Tax Relief Act" passed, 414-4. That law expired on Dec. 31.

By passing another law, taxpayers would be protected in 2008 when filing their 2007 taxes.

Joe M. Falbo Jr., a certified public accountant with Swiantek & Falbo LLP, said he has seen how the AMT can affect his clients. He said he filed a single father's taxes who had to pay the AMT tax but had no idea he would have to.

In his experience, he hasn't worked with any residents who knew they were responsible for the AMT, which is why it's considered the stealth tax, he said.

"This tax costs Americans $50 billion every year," Reynolds said, adding that the increase was $39 billion last year.

"We must act now to avoid the massive tax increase on thousands of unsuspecting Western New York taxpayers," he said.

Erie County isn't the only county in WNY potentially affected. Taxpayers would pay $3,103 in Niagara County and $4,602 in Wyoming County. Reynolds also cited increases for Monroe, Genesee, Livingston and Orleans counties.

For more information on the AMT, visit http://www.taxfounda tion.org/research/show/498.html.