Quick Facts: Alternative Minimum Tax (AMT)

1. What is the AMT?
2. ATRA permanently protects taxpayers from AMT bracket creep
3. Indexed AMT exemptions keeps the number of taxpayers on the AMT at around 4 million in future tax years
4. What did it cost to permanently index the AMT?
5. The AMT will generate moderate revenues between 2012 and 2022
6. Who pays the AMT?
7. Historical and projected estimates of AMT revenues and taxpayers, 1970-2022

Visit our AMT Topics Page for more information on the AMT

1. What is the AMT?

The Alternative Minimum Tax parallels the regular income tax: taxpayers whose AMT liability exceeds their regular tax liability pay the difference as AMT.

The AMT replaces personal exemptions and some deductions (most notably, the standard deduction and the deduction of state and local taxes) with an AMT exemption and applies two tax rates-26% on the first $175,000 and 28% on any excess-to the resulting AMT taxable income.

The American Taxpayer Relief Act of 2012 indexed three AMT parameters after 2012: the exemptions, the AMT income above which the exemption phases out, and the start of the 28% AMT bracket.
Report: Tax Provisions in the American Taxpayer Relief Act of 2012 (ATRA)

2. ATRA permanently protects taxpayers from AMT bracket creep.

Around 4 million taxpayers will pay $34 billion in AMT in 2012, an average of nearly $8,500 each. Without the higher exemptions from ATRA, approximately 32 million Americans would have had to pay the AMT. Over time, however, real income growth will increase the number of taxpayers subject to the alternative levy. 
Table: Aggregate AMT Projections, 2011-2022

3. Indexed AMT exemptions keeps the number of taxpayers on the AMT at around 4 million in future tax years.

ATRA set AMT exemptions at $78,750 for couples and $50,600 for other taxpayers in 2012. Those exemptions, as well as the threshold above which the exemption phases out and the start of the 28% AMT bracket, are indexed for inflation after 2012.
Table: Aggregate AMT Projections, 2011-2022

Underlying data: download

4.What did it cost to permanently index the AMT?

The increase in the AMT exemption in 2012 from $45,000 to $78,750 for married couples filing jointly and from $33,750 to $50,600 for other taxpayers will cut revenues by $86 billion for the 2012 permanent extension of the 2011 AMT exemption, indexed for inflation, will cut revenues by $86 billion in calendar year 2012 and reduce the number of taxpayers by almost 88 percent from over 32 million to 4.0 million. Permanently extending and indexing the patch will reduce revenue by an estimated $814 billion over the 2012-2022 period, relative to pre-ATRA law. 
Table: Aggregate AMT Projections, 2011-2022

5. The AMT will generate moderate revenues between calendar years 2012 and 2022

The AMT will increase individual income tax revenue by about $357 billion over the 2012-2022 calendar year period.

Table: Aggregate AMT Projections, 2011-2022

Underlying data: download

6. Who pays the AMT?

Congress intended the AMT for high-income taxpayers.

In 2012, about half of taxpayers with incomes between $200,000 and $500,000 will pay AMT, compared with about 2% of taxpayers with incomes between $100,000 and $200,000 and less than 1% of those with incomes below $100,000.

Without the increased AMT exemptions in ATRA, about 97% of those with incomes between $200,000 and $500,000 would owe AMT in 2012, as would roughly 80% of those with income between $500,000 and $1 million and those with income between $100,000 and $200,000.

Taxpayers at the very top of the income scale are less likely to pay AMT than those just below them because they pay regular tax rates higher than the top AMT rate.
Table: Characteristics of AMT Taxpayers

Families with more children are more likely to owe AMT
Under current law, 6.3% of taxpayers with three or more children will pay AMT for 2012, compared with 2.3% of childless taxpayers because the AMT denies exemptions for dependents that the regular tax system allows.
Table: Characteristics of AMT Taxpayers

click for underlying data

Residents of high-tax states are more likely to pay AMT than those in low-tax states.
Over 4% of residents of high-tax states will owe AMT for 2012, compared with less than 2% of residents of low-tax states because the AMT does not allow a deduction for state and local taxes paid.
Table: Characteristics of AMT Taxpayers

Taxpayers are much more likely to owe AMT in some states than in others.
In 2010 (the most recent year for which data are available), the top five states in terms of percentage of returns on the AMT were New Jersey (9.1%), New York (7.9%), Connecticut (7.7%), the District of Columbia (7.4%), and California (7.1% with rates ranging from 9.1 to 7.1% in 2010. In contrast, less than 2% of taxpayers in Alabama, Alaska, Nevada, South Dakota, Tennessee, West Virginia or Wyoming paid the alternative levy that year.
Table: 2010 Alternative Minimum Tax by State

7. Historical and projected estimates of AMT revenues and taxpayers, 1970-2022

Fewer than 2 million taxpayers paid AMT in any year before 2002. Because the 2001-2003 tax cuts were not matched by equivalent reductions in the AMT, the number of taxpayers subject to the alternative levy rose to 5 million in 2005. Subsequent increases in the AMT exemption reduced that number slightly before ATRA permanently indexed the exemption and other parameters starting in 2012. The number of taxpayers who owe AMT will stabilize at about 4.6 million by the end of the decade.

Table: AMT Recent History and Projections, 1970-2022

For more on the AMT visit the AMT Tax Topics page