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 and local taxes, claim miscellaneous deductions, or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics.
In 2010, 4.02 million taxpayers were subject to the AMT, a slight increase from 3.88 million taxpayers in 2009. In 2010, New Jersey, Connecticut, the District of Columbia, and New York had the highest percentage of taxpayers subject to the AMT. Mississippi, Tennessee, Alabama, and South Dakota had the lowest percentage of taxpayers subject to the AMT.
In 2012, absent an increase of the AMT exemption amount, 32.4 million taxpayers will be subject to the AMT. At that time, whether a married taxpayer has itemized deductions for state and 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 incomes will be subject to the AMT because personal exemptions are not allowed against the AMT.
The President’s FY2013 Budget proposes an alternative budget baseline where the AMT is permanently indexed for inflation based on 2011 parameters. The estimated revenue loss, assuming the tax cuts enacted from 2001 to 2003 are extended for middle income taxpayers, would be $1.9 trillion over the FY2013-FY2022 budget window.
Date of Report: December 4, 2012
Number of Pages: 13
Order Number: RS22083
Price: $29.95
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