CRS Updates Report on AMT
RS22909
- AuthorsMaguire, StevenTeefy, Jennifer
- Institutional AuthorsCongressional Research Service
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2008-21513
- Tax Analysts Electronic Citation2008 TNT 196-16
Order Code RS22909
Updated September 25, 2008
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Jennifer Teefy
Information Research Specialist
Knowledge Services Group
Summary
_________________________________________________________
The AMT exemption amounts for the 2008 tax year revert to $45,000 for joint filers and $33,750 for single filers. Without a patch, roughly 26 million taxpayers will be affected by the AMT in 2008. The FY2009 budget compromise, S.Con.Res. 70, includes an offset AMT patch. On June 18, 2008, the House Ways and Means Committee reported out H.R. 6275, which provides an AMT patch that is offset (the patch is estimated to cost $61.8 billion). The House approved H.R. 6275 on June 25, 2008, as reported. On September 23, 2008, the Senate approved H.R. 6049 that includes an AMT patch without an offset and extensions of a variety of expiring tax provisions that would be partially offset. On September 24, 2008, the House approved H.R. 7005 that would patch the AMT for 2008.
This report will be updated as legislative action warrants.
Introduction
In 1969, after a number of high-visibility television, magazine, and news stories about a relatively small number of extremely wealthy individuals who paid virtually no income taxes, the alternative minimum tax (AMT) for individuals was enacted to ensure that all taxpayers pay at least a minimum amount of federal taxes.1 It was designed so that individuals could not take unfair advantage of the various preferences and incentives under the regular income tax to substantially reduce their regular income tax liability below what was considered appropriate for their income level. The AMT functions as a parallel tax system to the regular income tax. Taxpayers calculate their regular income tax and then calculate their AMT. If their AMT liability is larger than their regular income tax liability, then they pay the AMT.
There is projected to be a significant increase in the number of middle-to upper-middle-income taxpayers affected by the AMT in the near future. In 2006, about 4.2 million taxpayers were subject to the AMT. If not for the patch provided in P.L. 110-166, enacted on December 26, 2007, up to 23 million taxpayers would have been subject to the AMT in 2007.2 For the 2008 tax year, 25.7 million taxpayers are projected to be affected by the AMT absent congressional action.3
There are two main reasons for the increase in the number of taxpayers affected by the AMT. First, the regular income tax is indexed for inflation, but the AMT is not. Over time, this has reduced the differences between regular income tax liabilities and AMT liabilities at any given nominal income level, differences that will continue to shrink in the absence of AMT indexation. The second reason is that the 2001 and 2003 reductions in the regular income tax have further narrowed the differences between regular and AMT tax liabilities. The combination of these two factors means that, absent legislative changes, there will be significant growth in the number of taxpayers affected by the AMT.
Since 1998, the effects of the AMT have been mitigated through temporary provisions allowing certain personal tax credits to offset AMT liability and temporary increases in the basic exemption for the AMT. The Tax and Trade Relief Extension Act of 1998 allowed taxpayers to use nonrefundable personal tax credits in full against their regular income tax even though the use of the credits might reduce a taxpayer's regular income tax liability below their AMT liability.4
The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16, EGTRRA) temporarily increased the AMT exemption amounts from $45,000 to $49,000 for joint returns and from $33,750 to $35,750 for unmarried individuals with the changes effective for tax years between 2001 and 2004.
The Job Creation and Worker Assistance Act of 2002 (P.L. 107-147) extended the temporary provisions, first enacted in 1998 and then extended in 1999, that allowed individuals to use all personal tax credits against both their regular and AMT tax liabilities. This change was effective through December 31, 2003.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27, JGTRRA) increased the basic AMT exemption amount to $58,000 for joint returns and to $40,250 for unmarried taxpayers. These increases were in effect for tax years 2003 and 2004. JGTRRA also established that the new maximum tax rate of 15% applicable to capital gains and dividend income under the regular income tax would also apply to the taxation of capital gains and dividend income under the AMT.
The Working Families Tax Relief Act of 2004 (P.L. 108-311, WFTRA) extended through 2005 JGTRRA's increase in the basic AMT exemption amounts. WFTRA also extended the provision allowing nonrefundable personal tax credits to offset both regular and AMT tax liability in full for taxable years 2004 and 2005.
The American Jobs Creation Act of 2004 (P.L. 108-357) made several changes to the AMT. It coordinated farmer and fisherman income averaging with the AMT so that the use of income averaging did not push taxpayers into the AMT. It repealed the 90% limitation on the use of the AMT foreign tax credit. The act also allowed the credits for alcohol used as a fuel and electricity produced by renewable resources to be used in full against the AMT.
Legislative Action in the 109th Congress
In May 2006, Congress approved the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222, TIPRA) that included a one-year extension (through 2006) of both the AMT's personal-credit and increased-exemption provisions. For 2005, the exemption amount was $58,000 for joint returns and $40,250 for unmarried taxpayers. TIPRA increased the 2006 AMT exemption to $62,550 for joint returns and $42,500 for unmarried taxpayers.
In December 2006, Congress passed the Tax Relief and Health Care Act of 2006 (P.L. 109-432). This act included a provision making the AMT tax credit refundable. Under the act, taxpayers can claim an AMT refundable credit amount that is the greater of (1) the lesser of $5,000 or the unused minimum credit, or (2) 20% of the unused minimum credit. The unused credit is the credit attributable to tax years prior to the previous three years. The AMT refundable credit is reduced for taxpayers with adjusted gross incomes in excess of certain threshold amounts. (For joint returns in 2007, the threshold is $234,600.) This provision applies to tax years beginning before January 1, 2013.
Legislative Action in the 110th Congress
The FY2009 budget compromise, S.Con.Res. 70, which includes an offset AMT patch, passed the Senate on June 4, 2008, and the House on June 5, 2008. The House approved H.R. 6275 on June 25, 2008, as reported. On September 23, 2008, the Senate approved H.R. 6049, which includes an AMT patch without an offset and extensions of a variety of expiring tax provisions that would be partially offset. On September 24, 2008, the House approved H.R. 7005, which would patch the AMT for 2008.
The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (H.R. 2206) was enacted on May 25, 2007, and allowed the tax credits for the work opportunity credit and the credit for taxes paid with respect to employee cash tips to be used in full against both the corporate and individual alternative minimum taxes. The Tax Increase Prevention Act of 2007 (P.L. 110-166), enacted on December 26, 2007, set the AMT exemption levels at $66,250 for joint filers and $44,350 for single filers and allows nonrefundable personal credits to offset AMT liability. Table 1 presents an abbreviated chronology of the legislative action resulting in the AMT patch (P.L. 110-166) for the 2007 tax year; Table 2 does the same for the 2008 tax year.
Table 1. Votes on the 2007 Patch for the AMT in the 1st Session
of the 110th Congress
Date
Vehicle
Vote
Vote Description and Result
______________________________________________________________________
Date
5/17/2007
Vehicle
S.Con.Res. 21
Vote
House Vote 377
Vote Description and Result
Fiscal 2008 Budget Resolution -- Conference Report Among other
things, this resolution called for a one-year patch for the AMT.
Adopted (thus sent to the Senate) by a vote of 214-209.
______________________________________________________________________
Date
5/17/2007
Vehicle
S.Con.Res 21
Vote
Senate Vote 172
Vote Description and Result
Fiscal 2008 Budget Resolution -- Conference Report Among other
things, this resolution called for a one-year patch for the AMT.
Adopted by a vote of 52-40.
______________________________________________________________________
Date
5/17/2007
Vehicle
H.R. 2206
P.L. 110-28
Vote
Senate Vote
Vote Description and Result
U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007.
Among other things, this legislation included a waiver of individual
and corporate AMT limits on the work opportunity tax credit and
credit for taxes paid with respect to employee cash tips.
Passed Senate by voice vote.
______________________________________________________________________
Date
11/1/2007
Vehicle
H.R. 3996
Vote
Committee Vote
Vote Description and Result
Temporary Tax Relief Act/Vote to Report.
The bill would allow taxpayers to apply nonrefundable personal
credits against the AMT in 2007. The bill would also increase the AMT
exemption amount to $66,250 for joint filers and $44,350 for
individuals. These provisions provided for a one-year patch for the
AMT. The bill also extended several expiring tax provisions for one
year. The bill expanded the eligibility for the refundable child tax
credit by setting the threshold for the credit at $8,500. To offset
the cost of the measure, the bill included provisions intended to
raise revenue, such as taxing the carried interest of private equity
managers, venture capitalists, and some real estate investors up to
35% instead of the current 15%.
Reported favorably out of the committee (as amended) 22-13.
______________________________________________________________________
Date
11/9/2007
Vehicle
H.R. 3996
Vote
House Vote 1081
Vote Description and Result
Alternative Minimum Tax Adjustment -- Passage.
The bill provided a one-year patch for the AMT. It also extended
several expiring tax provisions for one year. The bill expanded the
eligibility for the refundable child tax credit by setting the
threshold for the credit at $8,500. To offset the cost of the
measure, the bill included provisions intended to raise revenue, such
as taxing the carried interest of private equity managers, venture
capitalists, and some real estate investors up to 35% instead of the
current 15%.
Passed 216-193.
______________________________________________________________________
Date
12/6/2007
Vehicle
H.R. 3996
Vote
Senate Vote 414
Vote Description and Result
Alternative Minimum Tax Adjustment -- Cloture.
Motion to invoke cloture (thus limiting debate) on the Reid, D-Nev.,
motion to proceed with a vote on H.R. 3996 as passed by the House.
Motion rejected 46-48.
______________________________________________________________________
Date
12/6/2007
Vehicle
H.R. 3996
S.Amdt. 3804
Vote
Senate Vote 415
Vote Description and Result
Alternative Minimum Tax Adjustment -- Passage.
Passage of a one-year AMT patch. Before passage, the Senate adopted
by voice vote the Baucus, D-Mont., substitute amendment no. 3804 that
dropped the tax offsets and other non-AMT tax reduction extenders
contained in the House bill.
Passed 88-5.
______________________________________________________________________
Date
12/12/2007
Vehicle
H.R. 4351
Vote
House Vote 1153
Vote Description and Result
Alternative Minimum Tax Adjustment -- Passage.
Passage of the bill that would provide a one-year patch for the AMT
in 2007. In addition, the bill would expand the eligibility in 2008
for the refundable child tax credit by setting the threshold for the
credit at $8,500. The other tax cuts included in the original bill
passed by the House on Nov. 9 were dropped from this bill. To offset
the costs of the AMT patch, the bill would limit a number of tax
breaks, including the ability of taxpayers to use offshore
arrangements for deferred compensation by including it in gross
income and taxing it on a current basis.
Passed 226-193.
______________________________________________________________________
Date
12/19/2007
Enacted
12/26/2007
Vehicle
H.R. 3996
P.L. 110-166
Vote
House Vote
1183
Vote Description and Result
Alternative Minimum Tax Adjustment -- Passage.
Rangel, D-N.Y., motion to suspend the rules and concur with the
Senate amendment (S.Amdt. 3804) to the bill that would provide a
one-year patch for the AMT in 2007 without offsets.
The bill allows taxpayers to apply nonrefundable personal credits
against the AMT in 2007. The bill increases the AMT exemption amount
to $66,250 for joint filers and $44,350 for individuals.
Motion agreed to, 352-64.
______________________________________________________________________
Table 2. Votes on the 2008 Patch for the AMT in the 2nd Session
of the 110th Congress
Date
Vehicle
Vote
Vote Description and Result
______________________________________________________________________
Date
3/13/2008
Vehicle
H.Con.Res. 312
(House FY2009 Budget Resolution)
Vote
House Vote
141
Vote Description and Result
Fiscal 2009 Budget Resolution Among other things, this resolution
calls for a one-year patch for the AMT, which must be offset.
Passed 212-207.
______________________________________________________________________
Date
3/14/2008
Vehicle
S.Con.Res. 70 (Senate FY2009 Budget Resolution)
Vote
Senate Vote 85
Vote Description and Result
Fiscal 2009 Budget Resolution
Among other things, this resolution calls for a one-year
patch for the AMT, which is not offset.
Passed 51-44.
______________________________________________________________________
Date
6/04/2008 and 6/05/2008
Vehicle
S.Con.Res. 70 (the final version of FY2009 budget agreement)
Vote
Senate Vote 142
House Vote 382
Vote Description and Result
Among other things, this resolution calls for a one-year patch for
the AMT, which must be offset.
Passed Senate 48-45; Passed House 214-210.
______________________________________________________________________
Date
6/10/2008
Vehicle
H.R. 6049 Senate Vote 147 on Cloture Rejected
Vote
The Sen. Baucus substitute version of the legislation would patch the
AMT for 2008 and extend several tax provisions for one year. The tax
extenders would be offset; the AMT patch would not be offset. Cloture
vote on motion to proceed to H.R. 6049 rejected 50-44.
______________________________________________________________________
Date
6/17/2008
Vehicle
H.R. 6049
Vote
Senate Vote 150 on Cloture Rejected
Vote Description and Result
The Sen. Baucus substitute version of the legislation would patch the
AMT for 2008 and extend several tax provisions for one year. The tax
extenders would be offset; the AMT patch would not be offset. Cloture
vote on motion to proceed to H.R. 6049 rejected 52-44.
______________________________________________________________________
Date
6/18/2008
Vehicle
H.R. 6275
Vote
Committee Vote
Vote Description and Result
Rep. Charles Rangel's bill would allow nonrefundable personal tax
credits to offset AMT tax liability and would increase the AMT
exemption amounts to $69,950 for joint returns and $46,200 for single
returns. The patch is offset.
These changes would be effective for one year, 2008.
______________________________________________________________________
Date
6/25/2008
Vehicle
H.R. 6275
Vote
House Vote 455
Vote Description and Result
Rep. Charles Rangel's bill providing for an offset AMT patch was
approved 233-189.
_____________________________________________________________________
Date
9/23/2008
Vehicle
H.R. 6049
Vote
Senate Vote 205
Vote Description and Result
The legislation would patch the AMT for 2008 and extend several tax
provisions for one year. The tax extenders would be partially offset;
the AMT patch would not be offset. H.R. 6049 was approved 93-2.
______________________________________________________________________
Date
9/24/2008
Vehicle
H.R. 7005
Vote
House Vote 634
Vote Description and Result
The legislation would patch the AMT for 2008 and is not offset. H.R.
7005 was approved 393-30.
______________________________________________________________________
The Administration's FY2009 budget proposal includes a one-year patch for the AMT. The Administration's proposal would increase the basic AMT exemption to $70,050 for joint returns and $46,250 for unmarried taxpayers. It would also allow all nonrefundable personal tax credits to offset AMT liability in full. These changes would be effective for 2008 only. The estimated federal revenue loss from this proposal is $58.4 billion for the FY2008 to FY2010 budget window.
FOOTNOTES
1 There is also a corporate minimum tax, but it is not addressed in this report.
2 U.S. Congress, Joint Committee on Taxation, Present Law and Background Relating to the Individual Alternative Minimum Tax, JCX-38-07, June 25, 2007.
3 Joint Committee on Taxation, June 25, 2007.
4 For more detailed information on which taxpayers will be affected by the AMT, see CRS Report RS22200, The Potential Distribution Effects of the Alternative Minimum Tax, by Steven Maguire; and CRS Report RS22083, Alternative Minimum Taxpayers By State: 2005, 2006, and Projections for 2008, by Steven Maguire.
END OF FOOTNOTES
- AuthorsMaguire, StevenTeefy, Jennifer
- Institutional AuthorsCongressional Research Service
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2008-21513
- Tax Analysts Electronic Citation2008 TNT 196-16