In 1969, Congress imposed the alternative minimum tax as a way to trap well-to-do people who slash income tax through aggressive use of deductions and shelters. But because of a glitch in the law, the levy is increasingly hitting middle-class taxpayers who may have everyday deductions. This season, 1.3 million filers are expected to pay the tax or lose credits because of it, twice as many as fell into its grasp just three years ago.

Although even the IRS wants to limit the confusing tax, proposals to do so have languished on Capitol Hill. And President Bush's proposed tax cut would only make matters worse. "Many middle-income taxpayers are not even aware they owe alternative minimum tax until notified by the IRS," Henry Lamar, deputy national taxpayer advocate at the IRS, said earlier this year. His office has twice recommended ending or revising the levy.

The AMT is an alternative, though not voluntary, way of figuring your tax, but one less generous in the breaks it offers. One reason the tax is threatening average people is that unlike the standard income tax, its special rate brackets and exemptions are not indexed for inflation.

The tax can strike people who are heavy users of tax breaks because it limits shelters and depreciation. And it disallows common deductions, such as interest on home equity loans, dependent exemptions, miscellaneous job expenses, and local taxes. Employees with stock options may be shocked to find they owe AMT if they exercised their options last year. Under regular rules, there is no tax until the shares are sold. But under the AMT, the shares likely became taxable when the option was exercised. So these people might now owe tax even though their shares have lost value. But even a family with five children, wages of $70,000, and the standard deduction could incur a bit of extra tax because of the AMT, says the IRS.

Singled out. The effects of the AMT are well known to David Klaassen, a Marquette, Kan., lawyer who has been caught by it since 1994. He and his wife, Margaret, weren't surprised last year when they owed no regular income tax despite an adjusted gross income of $94,081. The Klaassens have 13 dependent children, ages 3 to 21, and the couple were able to claim $41,250 in personal and dependent exemptions and $4,909 in child tax credits. But that made the Klaassens subject to the AMT, and they owed $3,887 for 1999. They expect more of the same on their 2000 return. The couple--an emblem for efforts to revamp the tax--have unsuccessfully appealed the levy. "We're not tax protesters," says David Klaassen. "But we're being mistreated."

A tax preparer will figure all this out for you or a computer tax preparation program can help you with the calculations. In addition, the instructions for the 1040 include a worksheet to determine if you should proceed to fill out the AMT form. But the IRS has estimated that only about 1 in 7 filers who do the math actually ends up owing the AMT. In that drill, you first figure your tax the standard way and then do it again under the AMT. You pay whichever tax is higher.

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