The fiscal cliff, Washington’s latest catch-phrase, holds a surprise for California taxpayers seeking early filing opportunities. According to acting IRS Commissioner Steven Miller, the tax controversy looms trouble on the horizon for nearly two-thirds of America’s nearly 150 million tax filers. The AMT tax controversy means that many California taxpayers may be affected by Congress’ delay in acting on the fiscal cliff issue. The AMT laws were initially enacted as part of the Tax Reform Act of 1969 and imposed an additional tax to the regular income tax.

Congress has adjusted the rate and the threshold exemption level by enacting a ‘patch’ as a means for sheltering California and other taxpayers from AMT’s higher burdens. In a letter to the ranking minority member of the House Ways and Means Committee, Miller claims, without the patch, nearly 30 million additional taxpayers will incur AMT consequences when filing their 2012 returns. Falling off the cliff means the AMT exemption ceiling for 2012 for married filing jointly taxpayers will drop from 2011’s $74,450 to $45,000.

By Miller’s claim and owing to Congressional uncertainties, the earliest California taxpayers may be able to file for expected refunds will be March 2013. The IRS continues to closely monitor Congressional activity to issue timely guidance. The AMT tax controversy is writing its own uncertainty as the fiscal cliff drew near.

California employers are also waiting to see how this tax controversy winds its way through the legislative maze. Absent the Congressional AMT exemption patch, 2013 federal income tax withholding will definitely increase. Under this scenario, employers will have to increase California taxpayer withholdings to cover increased AMT tax obligations. Without any action, taxpayers could also incur additional tax debt due to higher taxes, a scenario that may require enlisting the aid of a knowledgeable party to help navigate the sometimes murky waters of tax law.

Source: USA Today, “Fiscal cliff could mean tough tax-filing season,” Kevin McCoy, Dec. 26, 2012