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Quick Facts: Alternative Minimum Tax (AMT)

  1. What is the AMT?
  2. Did ATRA permanently protect taxpayers from the effects of inflation on AMT?
  3. How will the number of taxpayers owing AMT change in the future?
  4. What did it cost to permanently index the AMT?
  5. How much revenue will the AMT generate over the next decade?
  6. Who pays the AMT?
  7. How have AMT revenues and taxpayers changed? How will they change going forward?

Visit our AMT Tax 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 $179,500 in 2013 ($89,750 if married filing separately) 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. Did ATRA permanently protect taxpayers from the effects of inflation on AMT?

ATRA permanently indexed the three AMT parameters, thereby protecting millions of taxpayers from owing the additional tax simply because of inflation. In 2013, an estimated 3.9 million taxpayers will pay $25.6 billion in AMT, an average of just over $6,600 each. Without the higher exemptions set by ATRA, approximately 23 million Americans would have had to pay the AMT in 2013 and that number would have grown to more than 50 million by 2023.

But ATRA’s indexation will not prevent the number of taxpayers owing AMT from growing. Growth of real incomes will increase the number of AMT payers to more than 6 million in 2023.


Table: Aggregate AMT Projections, 2012-2023

3. How will the number of taxpayers owing AMT change in the future?

Because of real income growth, the percentage of tax units paying AMT will rise over time from 4.2 percent in 2013 to about 5.5 percent by 2023. Over that period, the number of AMT payers will rise from 3.9 million to about 6 million. Unless Congress changes the tax, real income growth will cause more and more taxpayers to become subject to the AMT over time.
Table: Aggregate AMT Projections, 2012-2023

AMT-Taxpayers-2013
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 cut revenues by about $90 billion in calendar year 2012 and reduced the number of AMT payers by almost 88 percent from over 33 million to 4.2 million. ATRA’s permanent extension and indexation of the patch will reduce revenue by an estimated $991 billion over the 2013-2023 period, relative to pre-ATRA law.
Table: Aggregate AMT Projections, 2012-2023

5. How much revenue will the AMT generate over the next decade?

AMT revenue will increase from almost $26 billion in 2013 to nearly $48 billion in 2023. Over the decade, the AMT will boost individual income tax revenue by about $410 billion.

Table: Aggregate AMT Projections, 2012-2023

AMT-Revenue-2013
Underlying data: download

AMT-Characteristics-2013

6. Who pays the AMT?

Congress intended the AMT for high-income taxpayers.

In 2013, nearly a third 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, fully two-thirds of those with incomes between $200,000 and $500,000 would owe AMT in 2013, as would nearly one-third of those with income between $500,000 and $1 million and more than 40% of 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, 5.8% of taxpayers with three or more children will pay AMT for 2013, compared with 2.1% of childless taxpayers because the AMT denies exemptions for dependents that the regular tax system allows.
Table: Characteristics of AMT Taxpayers

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 2013, 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


click for underlying data

Taxpayers are much more likely to owe AMT in some states than in others.
In 2011 (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 (6.5%), Connecticut (6.0%), the District of Columbia (5.7%), New York (5.4%), and Maryland (4.9%). In contrast, less than 1.3% of taxpayers in Alabama, Alaska, Mississippi, Nevada, South Dakota, Tennessee, and Wyoming paid the alternative levy that year.
Table: 2011 Alternative Minimum Tax by State

7. How have AMT revenues and taxpayers changed? How will they change going forward?

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 temporary but repeated 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 slowly rise to about 6.1 million by 2023.

Table: AMT Recent History and Projections, 1970-2023

For more on the AMT visit the AMT Tax Topics page