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Monday, November 22, 2010

Alternative Minimum Taxpayers by State: 2007, 2008, and Projections for 2010

Steven Maguire
Specialist in Public Finance

The alternative minimum tax (AMT) is a second federal income tax that operates along side the regular income tax. The AMT is intended to ensure that all taxpayers pay at least a minimum amount of tax on income. The AMT disallows or otherwise limits a variety of exemptions and deductions to achieve this objective. Specifically, personal exemptions, itemized deductions for state/local taxes, and miscellaneous itemized deductions account for 96% of the preference items that are subject to tax under the AMT but not subject to tax under the regular income tax. As a result, over certain income ranges, taxpayers who claim itemized deductions for state/local taxes, miscellaneous deductions, or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics.

In 2008, 3.95 million taxpayers were subject to the AMT. New Jersey, Connecticut, the District of Columbia, New York, and Maryland had the highest percentage of taxpayers subject to the AMT. Tennessee, Alaska, South Dakota, Mississippi, and Alabama had the lowest percentage of taxpayers subject to the AMT.

In 2010, absent legislative change, according to the Joint Committee on Taxation, some 25.2 million taxpayers will be affected by the AMT. At that time, whether a married taxpayer has itemized deductions for state/local taxes or miscellaneous deductions will become a much less important factor than it is at present in determining AMT coverage. This occurs because, whether they itemize their deductions or not, married taxpayers across a wide range of the income spectrum will be subject to the AMT because personal exemptions are not allowed against the AMT.

The Joint Committee on Taxation estimates that the one-year AMT patch for 2010 would reduce federal revenues by almost $61.5 billion over 10 years. The President’s FY2011 Budget proposes permanently indexing the AMT for inflation. The revenue loss when measured against current law is $658.8 billion. If the tax cuts enacted from 2001 to 2003 are also extended, the revenue loss of the AMT would be significantly greater: over $1.2 trillion.

Date of Report: November 15, 2010
Number of Pages: 12
Order Number: RS2083
Price: $29.95

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