Quick Facts: Alternative Minimum Tax (AMT)
- What is the AMT?
- An expiring "patch" protected taxpayers from the AMT in 2007
- Lower AMT exemptions will force many more taxpayers to pay the AMT in 2008
- What would it cost to extend the "patch?"
- The AMT will generate substantial revenues between 2007 and 2018
- 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 2001-2006 tax cuts for many taxpayers.
- Options for Repealing or Modifying the AMT
- Historical data on AMT revenues and taxpayers, 1970-2017
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" protected taxpayers from the AMT in 2007
More than 4 million taxpayers paid about $27 billion in AMT in 2007, an average of about $6,600 each. Without temporarily higher AMT exemptions of $66,250 for married taxpayers and $44,350 for others, even more Americans would have had to pay the AMT.
Table: Aggregate AMT Projections, 2007-2018
3. Lower AMT exemptions will push many more taxpayers onto the AMT for tax years after 2007
The AMT exemptions fall to $45,000 for couples and $33,750 for other taxpayers in 2008. Unless Congress raises those amounts, almost 27 million taxpayers will owe AMT totaling roughly $88 billion in 2008, an average of about $3,300 per affected taxpayer.
Table: Aggregate AMT Projections, 2007-2018
Underlying data: download
4.What would it cost to extend the "patch?"
A temporary extension of the 2007 AMT exemption, indexed for inflation, would reduce revenues by almost $57 billion in calendar year 2008. Permanently extending and indexing the patch would cost $710 billion through 2018 if the 2001-06 tax cut expire as scheduled and $1.3 trillion if the tax cuts are made permanent.
Table: Extend and Index AMT Patch for Inflaction
5. The AMT will generate substantial revenues between calendar years 2009 and 2018
The AMT will account for about $935 billion over the 2009-2018 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 about $1.9 trillion over the 2009-2018 calendar year period.
Thus, extending the 2001-2006 tax cuts beyond 2010 would reduce 2007-2017 revenues by about $750 billion.
Table: Aggregate AMT Projections, 2007-2018
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 29% in 2008 to 34% in 2010 and 35% in 2017.
If the 2001-2006 tax cuts are extended, 49% of taxpayers will owe AMT in 2017.
Much of the AMT's growth results from the 2001-2006 tax cuts. Without those cuts, just 13% of taxpayers would owe AMT in 2008 and 16% in 2010.
Table: AMT Participation Rate
7. Who pays the AMT?
Congress intended the AMT for on high-income taxpayers, but the tax is moving ever further down the income distribution
In 2007, about half of taxpayers with income between $200,000 and $1 million paid AMT while just 4% of taxpayers with incomes between $100,000 and $200,000 and less than 1% of those with income below $100,000 did so.
In 2010, barring congressional action, about 95% of those with incomes between $200,000 and $500,000 will pay the tax as will about 70% of those with income between $500,000 and $1 million and 80% of those with income between $100,000 and $200,000.
Under current law, the AMT will continue to march down the income scale. By 2017, more than half of taxpayers with income between $75,000 and $100,000 will owe AMT and nearly a third 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: AMT Participation Rate
click for underlying data
Families with more children are more likely to owe AMT
Under current law, nearly half of taxpayers with three or more children will owe AMT in 2010, compared with 17% of childless taxpayers. Those numbers will rise to 65% and 16%, respectively, in 2017.
Table: AMT Participation Rate
Residents of high-tax states are more likely to pay AMT than those in low-tax states.
28% of residents of high-tax sates will owe AMT in 2010, compared with 21% of residents of low-tax states.
Table: AMT Participation Rate
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, California, and the District of Columbia paid AMT in 2005. In contrast, less than 2% of taxpayers in Wyoming, West Virginia, Mississippi, Alabama, North Dakota, Tennessee, South Dakota, and Alaska did.
Table: 2005 Alternative Minimum Tax by State
8. The AMT substantially reduces the value of the 2001-2006 tax cuts for many taxpayers. More than one-quarter of tax reductions from the cuts will be reclaimed by the AMT in 2010.
About one in four taxpayers with income 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 70 percent 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 2008: repeal would cost nearly $1.7 trillion from 2008 through 2017
Table: Aggregate AMT Projections - Adopt the AMT as the basic source of income taxes and repeal the regular income tax: revenue loss would be about $1.6 trillion from 2008 through 2017
Table: Aggregate AMT Projections, 2006-2017 - 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, 1970-2017
Table: AMT Recent History and Projections, 1970-2018
For more on the AMT visit the AMT Tax Topics page
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