This report discusses the alternative minimum tax (AMT) with respect to the percentage of taxpayers who fall under the AMT as divided by state. The report also briefly addresses related legislation

Esenwein, Gregg A.

UNT Digital Library

1 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Gregg Esenwein.Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS22083March 17, 2005Alternative Minimum Taxpayers By StateGregg EsenweinSpecialist in Public FinanceGovernment and Finance DivisionSummaryPersonal exemptions, itemized deductions for state/local  taxes, and  miscellaneousitemized deductions account for 90% of the preference items that are subject to taxunder the alternative minimum tax (AMT) but not subject to tax under the regularincome tax.  As a result, over certain income ranges, taxpayers who claim itemizeddeductions for state/local taxes, miscellaneous deductions, and/or have large familiesare more likely to fall under the AMT than taxpayers who do not have thesecharacteristics.In 2003, New Jersey, New York, Connecticut, the District of Columbia, andCalifornia had the highest percentage of taxpayers subject to the AMT.  Tennessee,South Dakota, Alaska, Alabama, and Mississippi had the lowest percentage of taxpayerssubject to the AMT.It should be noted that absent legislative change, whether a married taxpayer hasitemized deductions for state/local taxes and/or miscellaneous deductions will become a less important factor in determining AMT coverage.  This will result because, if theAMT is not modified, then across a broad range of the income spectrum all marriedtaxpayers will be subject to the AMT whether they itemize their deductions or not.This report will be updated as legislative action warrants or as new data becomeavailable.The alternative minimum tax for individuals (AMT) was originally enacted to ensurethat high-income taxpayers paid a fair share of the federal income tax.  However, the lackof indexation of the AMT coupled with the recent reductions in the regular income taxhas greatly expanded the potential impact of the AMT.1Temporary increases in the AMT exemptions are scheduled to expire at the end of2005.  If this occurs, then the number of taxpayers subject to the AMT will rise fromaround 2.3 million in 2003 to over 19 million in 2006.  Absent legislation, by 2010, some31million taxpayers will be subject to the AMT.  Taxpayers with incomes in the $100,000CRS-22 This relationship might change given the recent enactment of a temporary provision allowingitemized deductions for state/local sales taxes in lieu of income taxes.  See CRS Report RL32781,Federal Deductibility of State and Local Taxes, by Steven Maguire.3 See CRS Report RS21817, The Alternative Minimum Tax (AMT): Income Entry Points and“Take Back” Effects, by Gregg Esenwein.to $500,000 income range will be the hardest hit:  90% of these taxpayers will be subjectto the AMT in 2010.Personal exemptions (22%), itemized deductions for state/local  taxes (48%), andmiscellaneous itemized deductions (20%) together account for over 90% of the preferenceitems that are subject to tax under the AMT but not subject to tax under the regularincome tax.  As a result, over certain income ranges, taxpayers who claim itemizeddeductions for state/local taxes, miscellaneous deductions, and/or have large families aremore likely to fall under the AMT than taxpayers who do not have these characteristics.The following table shows for 2003 the percentage of taxpayers in each state thatwere subject to the AMT.  Of all the states, Tennessee, South Dakota, Alaska, Alabama,and Mississippi had the smallest percentage of taxpayers subject to the AMT.  In thesefive states, only four to five out of every 1,000 taxpayers paid the AMT in 2003.  Theseare states where either many taxpayers have relatively low incomes and/or state/localtaxes that are deductible from the federal income tax are relatively low.  As a result of thecombination of these factors,  taxpayers in these states tend not to itemize their deductionsand hence, are less likely to be subject to the AMT than taxpayers in other states.2On the other hand, New Jersey, New York, Connecticut, the District of Columbia,and California were the states with the largest percentage of taxpayers subject to theAMT.  For instance, in New Jersey, about 43 out of every 1,000 taxpayers fell under theAMT in 2003.  In these states, many taxpayers have relatively high incomes and thestate/local tax burden is also relatively high.  The combination of these factors producesa larger number of itemizers and, consequently, a larger percentage of taxpayers beingpushed into the AMT. It should be noted that absent legislative change, whether a married taxpayer hasitemized deductions for state/local taxes and/or miscellaneous deductions will becomea less important factor in determining whether taxpayers are subject to the AMT.  Thiswill result because, if the AMT is not modified, then across a broad range of the incomespectrum all married taxpayers will be subject to the AMT whether they itemize theirdeductions or not.For example, if the AMT is not changed, then in 2006, all married taxpayers filingjoint returns with two children will be subject to the AMT when their incomes exceed$67,500.  It would not matter whether they itemized deductions or took the standarddeduction; they would pay the AMT.  The income entry point for the AMT gets smalleras family size increases.  For instance, in 2006, all married couples with four childrenwhose incomes exceed $58,500 will be subject to the AMT rather than the regular incometax regardless of whether they itemize or take the standard deduction.3  CRS-3Number of Alternative Minimum Taxpayers by StateTax Year 2003 (Returns in thousands)Rank StateNumber ofReturns AMTReturnsAMT returns as% of total Rank StateNumber ofReturns AMTReturnsAMT returnsas % of total  U.S.A. 131,357 2,359 1.80%48  Alabama 1,884 10 0.52 30  Montana 434 5 1.04%49  Alaska 343 2 0.49 21  Nebraska 803 10 1.2635  Arizona 2,285 20 0.90 39  Nevada 1,044 8 0.7938  Arkansas 1,122 9 0.79 20  New Hampshire 635 8 1.285  California 15,172 475 3.13 1  New Jersey 4,082 179 4.3826  Colorado 2,079 23 1.11 36  New Mexico 814 7 0.873  Connecticut 1,654 61 3.68 2  New York 8,590 357 4.1523  Delaware 388 5 1.18 17  North Carolina 3,681 53 1.454  D.C. 276 9 3.27 46  North Dakota 302 2 0.5634  Florida 7,850 72 0.91 12  Ohio 5,444 97 1.7816  Georgia 3,709 54 1.45 37  Oklahoma 1,461 12 0.8425  Hawaii 591 7 1.11 10  Oregon 1,572 29 1.8528  Idaho 578 6 1.07 19  Pennsylvania 5,772 79 1.3718  Illinois 5,723 81 1.41 8  Rhode Island 498 11 2.1341  Indiana 2,817 20 0.71 27  South Carolina 1,805 20 1.0833  Iowa 1,325 13 0.95 50  South Dakota 357 2 0.4322  Kansas 1,219 15 1.19 51  Tennessee 2,565 11 0.4229  Kentucky 1,741 18 1.06 40  Texas 9,299 69 0.7442  Louisiana 1,880 13 0.69 31  Utah 970 10 1.0315  Maine 615 9 1.52 13  Vermont 302 5 1.617  Maryland 2,602 75 2.90 11  Virginia 3,432 61 1.796  Massachusetts 3,052 89 2.92 43  Washington 2,809 18 0.6524  Michigan 4,546 52 1.14 45  West Virginia 744 5 0.629  Minnesota 2,384 46 1.92 14  Wisconsin 2,590 41 1.5747  Mississippi 1,170 6 0.53 44  Wyoming 241 2 0.6332  Missouri 2,564 26 1.02Source: Department of the Treasury.  Internal Revenue Service. [http://www.irs.ustreas.gov/taxstats/article/0,,id=103106,00.html].

Alternative Minimum Taxpayers by State

https://digital.library.unt.edu/ark:/67531/metacrs6775/m1/1/high_res_d/RS22083_2005Mar17.pdf

Alternative Minimum Taxpayers by State

Abstract

Similar works

Full text

Available Versions

UNT Digital Library