Quick Facts: Alternative Minimum Tax (AMT)
- What is the AMT?
- An expiring "patch" protects taxpayers from the AMT in 2009
- Lower AMT exemptions will force many more taxpayers to pay the AMT in 2010
- What would it cost to extend the "patch?"
- The AMT will generate substantial revenues between 2009 and 2020
- AMT will grow rapidly over time because it is not indexed for inflation. Extending recent tax cuts will make matters worse.
- Who pays the AMT?
- The AMT substantially reduces the value of the 2001-2009 tax cuts for many taxpayers.
- Options for Repealing or Modifying the AMT
- Historical data on AMT revenues and taxpayers, 1970-2020
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.
Unlike the regular income tax, the AMT is not indexed for inflation. Thus, ever more taxpayers owe AMT as that liability rises relative to regular tax liability.
Testimony: The Individual Alternative Minimum Tax
2. An expiring "patch" protects taxpayers from the AMT in 2009
Around 4 million taxpayers will pay $35.5 billion in AMT in 2009, an average of about $8,400 each. Without temporarily higher AMT exemptions of $70,950 for married taxpayers and $46,700 for others, even more Americans would have had to pay the AMT.
Table: Aggregate AMT Projections, 2009-2020
3. Lower AMT exemptions will push many more taxpayers onto the AMT for tax years after 2009
The AMT exemptions fall to $45,000 for couples and $33,750 for other taxpayers in 2010. Unless Congress raises those amounts, over 27 million taxpayers will owe AMT totaling roughly $102 billion in 2010, an average of about $3,700 per affected taxpayer.
Table: Aggregate AMT Projections, 2009-2020
Underlying data: download
4.What would it cost to extend the "patch?"
A temporary extension of the 2009 AMT exemption, indexed for inflation, would reduce revenues by almost $62 billion in calendar year 2010 Permanently extending and indexing the patch would cost $671 billion through 2020 if the 2001-06 tax cut expire as scheduled and $1.3 trillion if the tax cuts are made permanent.
Table: Extend Patch and Index AMT for Inflation and Aggregate AMT Projections, 2009-2020
5. The AMT will generate substantial revenues between calendar years 2009 and 2020
The AMT will account for about $848 billion over the 2009-2020 calendar year period if the 2001-2006 tax cuts are not extended.
If the 2001-2006 tax cuts are extended beyond their scheduled expiration after 2010, the AMT will account for $1.9 trillion over the 2009-2020 calendar year period.
Table: Aggregate AMT Projections, 2009-2020
Underlying data: download
6. AMT will grow rapidly because it is not indexed for inflation. Extending recent tax cuts will make matters worse.
If the 2001-2006 tax cuts are not extended beyond 2010, the percentage of taxpayers owing AMT will rise from 16.2% in 2011 to 32.7 in 2020.
If the 2001-2006 tax cuts are extended, 47.2% of taxpayers will owe AMT in 2020.
Table: Characteristics of AMT Taxpayers
7. Who pays the AMT?
Congress intended the AMT for high-income taxpayers, but the tax is moving ever further down the income distribution
In 2009, about half of taxpayers with incomes between $200,000 and $1 million will pay AMT while only 4% of taxpayers with incomes between $100,000 and $200,000 and less than 1% of those with incomes below $100,000 will pay.
In 2010, barring congressional action, about 92% of those with incomes between $200,000 and $500,000 will pay the tax as will about 75% of those with income between $500,000 and $1 million and between $100,000 and $200,000.
Under current law, the AMT will continue to march down the income scale. By 2020, over 40 percent of taxpayers with income between $75,000 and $100,000 will owe AMT and nearly a quarter of those with income between $50,000 and $75,000 will owe AMT.
Taxpayers at the very top of the income scale are less likely to pay AMT than those just below them because they pay the top regular tax rate, which exceeds the top AMT rate.
Table: Characteristics of AMT Taxpayers
click for underlying data
Families with more children are more likely to owe AMT
Under current law, 41.6% of taxpayers with three or more children will owe AMT in 2010, compared with 13.3% of childless taxpayers because the regular tax system allows expemtions for dependents that the AMT does not. Those numbers will rise to 63.4% and 14.4%, respectively, in 2020.
Table: Characteristics of AMT Taxpayers
Residents of high-tax states are more likely to pay AMT than those in low-tax states.
Almost a quarter of residents of high-tax sates will owe AMT in 2010, compared with one-sixth 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.
More than 7% of taxpayers in New Jersey, New York, Connecticut, and the District of Columbia paid AMT in 2007. In contrast, less than 2% of taxpayers in Mississippi, West Virginia, Alabama, North Dakota, Tennessee, and South Dakota did.
Table: 2007 Alternative Minimum Tax by State
8. The AMT substantially reduces the value of the 2001-2009 tax cuts for many taxpayers. More than one-sixth of tax reductions from the cuts will be reclaimed by the AMT in 2010.
About 15% of taxpayers with incomes between $200,000 and $500,000 will get no benefit from the tax cuts in 2010, and taxpayers in that income range will, as a group, lose 63% of the value of the tax cuts to the AMT in that year.
Table: 2010 Effect of the AMT on 2001-2006 Tax Cuts
9. Options for Repealing or Modifying the AMT
- Repeal the AMT in 2010: repeal would cost over $900 billion from 2010 through 2020
Table: Extend AMT Patch and Index Parameters for Inflation - Extend the AMT Patch and index the parameters for inflation; would cost $671 billion from 2010-2020
Table: Extend AMT Patch and Index Parameters for Inflation - Repeal the AMT and impose a 4% surtax on high-income taxpayers
Table: Repeal AMT and Implement 4% Surtax - Repeal the AMT and the deduction for state and local taxes
Table: Repeal State and Local Tax Deduction and AMT - Other options to repeal or modify the AMT
Research Paper: Options to Fix the AMT
10. Historical data on AMT revenues and taxpayers, 1970-2020
Table: AMT Recent History and Projections, 1970-2020
For more on the AMT visit the AMT Tax Topics page
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