"God Giveth and God Taketh Away"
The Alternative Minimum Tax

Overview. The Alternative Minimum Tax (AMT) under Sections 55-59 applies if it exceeds the regular tax. The AMT is computed by applying a 26% rate on the first $175,000 of alternative minimum taxable income (AMTI), and a 28% rate on AMTI in excess of $175,000. Form 6251 is used to report and calculate the AMT. Generally, AMT is calculated by starting with regular taxable income and then adding back, either as adjustments or tax preference items, certain items to determine AMTI.

1. Effects of the AMT. According to a report of the Congressional Research Service (CRS) issued on June 14, 2006 (RS22083), personal exemptions (22%), itemized deductions for state and local taxes (48%), and miscellaneous itemized deductions (20%) together account for over 90% of preference items that are subject to tax under the AMT but not subject to tax under the regular income tax. The same report states that in 2003, just over two million taxpayers were subject to the AMT, and in 2004 about three million taxpayers were subject to the AMT. The CRS estimates that, absent legislative change, about 23 million taxpayers will be subject to the AMT in 2007, and about 31 million by 2010. This assumes that the temporary AMT relief described immediately below will not be extended, and the Congress will not otherwise provide AMT relief. Taxpayers with incomes in the $100,000 to $500,000 income range will be the hardest hit, with 90% of these taxpayers subject to the AMT in 2010. The report also lists the following states, by order of rank, as those with citizens most prone to be subject to the AMT: New Jersey, New York, Connecticut, the District of Columbia, California, Massachusetts, Maryland, Rhode Island, Minnesota, and Oregon. The five states least prone to be subject to the AMT were Tennessee, South Dakota, Alaska, Alabama, and Mississippi.

2. Temporary AMT Relief Provided. As noted in Chapter 1, Paragraph II.B., TIPRA extended through 2006 the temporary AMT relief provided in the 2003 JCTRRA. That relief extends the ability to use most nonrefundable personal tax credits to offset both regular tax and the AMT, and increases the surviving spouses and $42,550 for single taxpayers. In 2007, the AMT exemption amounts are scheduled to decrease to prior-law levels of $45,000 for joint returns and $33,750 for single taxpayers, and nonrefundable tax credits would not be allowed to offset AMT liability. The Joint Committee of Taxation estimated that the temporary 2006 AMT relief will reduce Federal revenues by almost $34 billion.

 

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