CRS Updates Report on Individual AMT
RL34382
- AuthorsMaguire, StevenTeefy, Jennifer
- Institutional AuthorsCongressional Research Service
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2008-7406
- Tax Analysts Electronic Citation2008 TNT 66-27
Order Code RL34382
Updated March 14, 2008
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Jennifer Teefy
Information Research Specialist
Knowledge Services Group
The Alternative Minimum Tax For Individuals:
Legislative Activity in the 110th Congress
Summary
The alternative minimum tax (AMT) for individuals was originally enacted to ensure that all taxpayers, especially high-income taxpayers, pay at least a minimum amount of federal taxes. However, the AMT is not indexed for inflation, and this factor, combined with the recent reductions in the regular income tax, has greatly expanded the potential impact of the AMT. Temporary provisions intended to mitigate the effects of the AMT expired at the end of 2006. In the last two months of 2007, legislative activity intended to "fix" the AMT intensified.
On November 9, 2007, the House approved H.R. 3996, legislation that, among other things, would set the 2007 AMT exemption levels at $66,250 for joint returns and $44,350 for single returns. In addition, this bill would allow nonrefundable personal tax credits to offset AMT tax liability for 2007. The House-passed legislation included revenue offsets for the AMT patch and the other tax cut extenders included in the bill. On December 6, 2007, the Senate passed its version of H.R. 3996 that included only the one-year patch for the AMT with no revenue offsets or other tax cut extenders.
On December 12, 2007, the House approved H.R. 4351, legislation that sets the AMT exemptions at the same levels as H.R. 3996, but does not include the other tax cut extenders. H.R. 4351 includes revenue offsets similar, but not identical to, those in H.R. 3996. On December 19, 2007, the House passed the Senate-amended version of H.R. 3996 (P.L. 110-166, enacted on December 26, 2007), which did not include revenue offsets or tax extenders.
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 Administration's FY2009 budget includes an AMT patch for the 2008 tax year and would allow all personal credits against AMT liability.
The House passed its FY2009 budget resolution (H.Con.Res. 312) on March 13, 2008, and the Senate passed its FY2009 budget resolution (S.Con.Res. 70) on March 14, 2008. The House budget plan includes an AMT patch, which is offset. The Senate budget plan also includes an AMT patch, but is not offset.
This report will be updated as legislative action warrants.
Contents
Introduction
Legislative Action in the 109th Congress
Legislative Action in the 110th Congress
Administration's Proposals
List of Tables
Table 1. Votes on the 2007 Patch for the Alternative Minimum Tax in
the First Session of the 110th Congress
Table 2. Votes on the 2008 Patch for the Alternative Minimum Tax in
the Second Session of the 110th Congress
Table 3. Other AMT Legislation in the 110th Congress
Legislative Activity in the 110th Congress
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 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.4
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.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (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 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 (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 (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 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 (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. According to estimates by the Joint Committee on Taxation, the one-year cost of these AMT provisions was $33.9 billion.
In December 2006, Congress passed the Tax Relief and Health Care Act of 2006. 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
On March 6, 2008, the House Budget Committee and the Senate Budget Committee approved their respective budget resolutions for FY2009. The House budget plan (H.Con.Res. 312) includes an AMT patch, which is offset. The Senate budget plan (S.Con.Res. 70) also includes an AMT patch, but is not offset. Both resolutions are scheduled for floor consideration the week of March 10, 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 3 summarizes all legislative proposals affecting the AMT introduced in the 110th Congress.
Table 1. Votes on the 2007 Patch for the Alternative Minimum Tax
in the First Session of the 110th Congress
Vote Description and Result
Date Vehicle Vote (D: Democrat; R: Republican; I: Independent)
5/17/2007 S.Con.Res. House Fiscal 2008 Budget Resolution -- Conference
21 Vote 377 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: R 0-196; D 214-13
5/17/2007 S.Con.Res. Senate Fiscal 2008 Budget Resolution -- Conference
21 Vote 172 Report Among other things, this resolution
called for a one-year patch for the AMT.
Adopted by a vote of 52-40: R 2-40; D 48-0;
I 2-0.
5/17/2007 H.R. 2206 Senate U.S. Troop Readiness, Veterans' Care,
Vote Katrina Recovery, and Iraq Accountability
P.L. 110-28 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.
11/1/2007 H.R. 3996 Committee Temporary Tax Relief Act/Vote to Report.
Vote
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 to the full House (as
amended) 22-13: R 0-13; D 22-0; I 0-0.
11/9/2007 H.R. 3996 House Alternative Minimum Tax Adjustment --
Vote Passage.
1081
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: R 0-185; D 216-8.
12/6/2007 H.R. 3996 Senate Alternative Minimum Tax Adjustment --
Vote 414 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: R 0-47; D 44-1;
I 2-0.
12/6/2007 H.R. 3996 Senate Alternative Minimum Tax Adjustment --
Vote 415 Passage.
S.Amdt.
3804 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: R 46-0; D 40-5; I 2-0.
12/12/2007 H.R. 4351 House
Vote
1153
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: R 0-190; D 226-3.
12/19/2007 H.R. 3996 House Alternative Minimum Tax Adjustment --
Vote 1183 Passage.
Enacted P.L.
12/26/2007 110-166 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: R 195-0;
D 157-64.
Table 2. Votes on the 2008 Patch for the Alternative Minimum Tax
in the Second Session of the 110th Congress
Vote Description and Result
Date Vehicle Vote (D: Democrat; R: Republican; I: Independent)
3/13/2008 H.Con.Res. House Fiscal 2009 Budget Resolution
312 Vote 141
Among other things, this resolution calls
for a one-year patch for the AMT, which is
offset.
Passed 212-207: R 0-191; D 212-16.
3/14/2008 S.Con.Res. Senate Fiscal 2009 Budget Resolution
70 Vote 85
Among other things, this resolution calls
for a one-year patch for the AMT, which is
not offset.
Passed 51-44: R 2-43; D 47-1; I 2-0.
Table 3. Other AMT Legislation in the 110th Congress
Bill Sponsor Effect on AMT
S. 55 Sen. Max Repeals the AMT effective for tax years
Jan. 4, 2007 Baucus after 2006.
Sen. Chuck
Grassley
S. 102 Sen. John Increases the basic AMT exemption and
Jan. 4, 2007 Kerry allows personal tax credits to offset AMT
liability. Offsets part of the cost of
these changes by repealing, in 2009 and
2010, the lower tax rates on dividends and
capital gains income.
S. 590 Sen. Gordon Allows the investment tax credit for solar
Feb. 14, 2007 Smith energy property and qualified fuel cell
property against the AMT.
S. 614 Sen. Charles Increases the basic AMT exemption for tax
Feb. 15, 2007 Schumer years 2007 and 2008.
Permits personal tax credits to offset AMT
liabilities.
S. 734 Sen. Arlen Reduces the AMT tax rate to 24%.
Mar. 1, 2007 Specter
S. 1040 Sen. Richard Among other things, this bill repeals the
Mar. 29, 2007 Shelby AMT.
S. 1111 Sen. Ron Among other things, this bill repeals the
Apr. 16, 2007 Wyden AMT.
S. 14 Sen. Jon Kyl Repeals the AMT effective in 2007.
Apr. 17, 2007
S. 1405 Sen. Sam Repeals the individual AMT effective in
May 16, 2007 Brownback 2008.
S. 1851 Sen. Jeff Indexes the AMT for inflation and allows
July 23, 2007 Sessions personal exemptions under the AMT.
S. 1855 Sen. Chuck Provides relief from penalty for failure to
July 23, 2007 Grassley pay estimated taxes attributable to the
AMT.
S. 1875 Sen. Jim Repeals the AMT effective in 2007.
July 25, 2007 DeMint
H.R. 370 Rep. Geoff Allows certain coal to liquid fuel tax
Jan. 10, 2007 Davis credits to be applied against the AMT.
H.R. 550 Rep. Michael Allows the investment tax credit for solar
Jan. 18, 2007 McNulty energy property and qualified fuel cell
property against the AMT.
H.R. 1112 Rep. Thomas Increases the basic AMT exemption to
Feb. 16, 2007 Reynolds $66,400 for joint returns and $45,100 for
unmarried taxpayers.
Allows personal tax credits to offset AMT
liabilities in full.
H.R. 1366 Rep. Phil Repeals the AMT starting in 2007.
Mar. 7, 2007 English
H.R. 1591 Rep. David Makes permanent the allowance for the work
Mar. 20, 2007 Obey opportunity tax credit and the credit for
taxes paid with respect to employee tips to
offset AMT liability. Passed by the House
and the Senate, but was vetoed by President
Bush on May 1, 2007.
H.R. 1869 Rep. Nydia Repeals the AMT starting in 2008.
Apr. 17, 2007 Velázquez
H.R. 1923 Rep. Kevin Increases and indexes the basic exemption
Apr. 18, 2007 McCarthy for the AMT.
Increases the point at which the basic
exemption is phased-out.
H.R. 1942 Rep. Scott Allows deductions for state and local taxes
Apr. 19, 2007 Garrett against AMT.
Indexes the basic AMT exemption.
H.R. 2253 Rep. Edward Reduces the AMT tax rate to 24%.
May 9, 2007 Royce
H.R. 2318 Rep. Robert Allows state and local property taxes to be
May 15, 2007 Andrews deducted from the AMT tax base.
H.R. 2691 Rep. Timothy Allows the tax credit for electricity
June 12, 2007 Walz produced from wind facilities against the
AMT.
H.R. 2748 Rep. Rodney Allows the alternative motor vehicle tax
June 15, 2007 Frelinghuysen credit against the AMT.
H.R. 2776 Rep. Charles Allows certain energy tax credits against
June 27, 2007 Rangel the AMT.
H.R. 2902 Rep. Thomas For 2007 and 2008, increases the AMT
June 28, 2007 Allen exemption and allows all personal tax
credits against the AMT.
H.R. 2983 Rep. Anthony Eliminates the AMT for taxpayers with
July 10, 2007 Weiner adjusted gross incomes (AGIs) under
$100,000 for unmarried taxpayers and
$200,000 for married taxpayers.
H.R. 3486 Rep. Brad Creates new mine safety credit, revises the
Sept. 6, 2007 Ellsworth credit for mine rescue team training, and
allows these credits against the AMT.
H.R. 3726 Rep. Baron Allows real property tax on the principal
Oct. 2, 2007 Hill residence to be deducted by non-itemizers
and allows this deduction against the AMT.
H.R. 3590 Rep. Nick Extends the AMT tax relief provisions
Sept. 19, 2007 Lampson through 2007.
H.R. 3818 Rep. Paul Repeals the AMT. Allows taxpayers to pay
Oct. 10, 2007 Ryan their regular income tax or pay taxes under
a new simplified tax system.
H.R. 3861 Rep. Chris Increases the AMT refundable credit amount
Oct. 16, 2007 Van Hollen for individuals with unused credits for
prior years minimum tax liability.
H.R. 3953 Rep. Tim Allows a deduction for property taxes in
Oct. 24, 2007 Mahoney the determination of AMT taxable income.
H.R. 3970 Rep. Charles Among other things, for 2007, this bill
Oct. 25, 2007 Rangel would provide for increased/indexed AMT
exemption amounts and would allow
nonrefundable personal credits to offset
AMT liabilities. For years after 2007, the
AMT would be repealed as part of a
fundamental restructuring of the individual
and corporate tax systems.
H.R. 3996 Rep. Charles Among other things, this bill allows
Oct. 30, 2007 Rangel nonrefundable personal tax credits to
offset AMT tax liability and increases the
AMT exemption amounts to $66,250 for joint
returns and $44,350 for single returns.
These changes would be effective for one
year, 2007.
H.R. 4351 Rep. Charles Among other things, this bill allows
Dec. 11, 2007 Rangel nonrefundable personal tax credits to
offset AMT tax liability and increases the
AMT exemption amounts to $66,250 for joint
returns and $44,350 for single returns.
These changes would be effective for one
year, 2007.
H.R. 5031 Rep. Thomas Amends the Internal Revenue Code to extend
Jan. 17, 2008 M. Reynolds relief from the alternative minimum tax.
Extends the increased alternative minimum
tax exemption amount beginning in 2008, and
the alternative minimum tax relief for
nonrefundable personal credits beginning in
2008.
H.R. 5105 Rep. David Indexes alternative minimum tax amounts for
Jan. 23, 2008 Dreier inflation beginning in tax year 2008.
S.Con.Res. 21 n/a House and Senate adopted the FY2008 budget
May 17, 2007 resolution. The resolution calls for a one-
year patch for the AMT.
S. 2293 Sen. Trent Among other things, this bill would repeal
Nov. 1, 2007 Lott the individual AMT.
S. 2318 Sen. John Among other things, this bill would repeal
Nov. 7, 2007 Ensign the individual AMT.
S. 2389 Sen. John This bill would increase the amount of the
Nov. 16, 2007 Kerry AMT refundable credit from 20% to 50% and
remove the income phaseouts for the credit.
S. 2416 Sen. Jim Repeals the current AMT and replaces it
Dec. 5, 2007 DeMint with an alternative tax that taxpayers have
the option to pay instead of their regular
income tax.
S. 2517 Sen. Gordon Amends the Internal Revenue Code to exempt
Dec. 18, 2007 H. Smith tax-exempt interest on qualified mortgage
or veterans' mortgage bonds issued before
2011 from the alternative minimum tax.
S. 2547 Sen. Indexes alternative minimum tax amounts for
Jan. 23, 2008 Christopher inflation beginning in tax year 2008.
S. Bond
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 RS21817, The Alternative Minimum Tax (AMT): Income Entry Points and "Take Back" Effects, by Gregg Esenwein; CRS Report RS22200, The Potential Distribution Effects of the Alternative Minimum Tax, by Steven Maguire; and CRS Report RS22083, Alternative Minimum Taxpayers By State: 2004, 2005, 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 2008-7406
- Tax Analysts Electronic Citation2008 TNT 66-27