CRS Updates Report on Alternative Minimum Taxpayers by State
RS22083
- AuthorsMaguire, Steven
- Institutional AuthorsCongressional Research Service
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2008-16632
- Tax Analysts Electronic Citation2008 TNT 147-28
Order Code RS22083
Updated July 15, 2008
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Summary
_____________________________________________________________________
In 2006, 4.1 million taxpayers were subject to the AMT. New Jersey, Connecticut, New York, the District of Columbia, and Maryland had the highest percentage of taxpayers subject to the AMT. South Dakota, Tennessee, Alaska, Mississippi, and North Dakota had the lowest percentage of taxpayers subject to the AMT.
In 2008, absent legislative change, according to the Joint Committee on Taxation, some 25.7 million taxpayers will be affected by the AMT. At that time, whether a married taxpayer has itemized deductions for state/local taxes or miscellaneous deductions will become a much less important factor than it is at present in determining AMT coverage. This occurs because, whether they itemize their deductions or not, married taxpayers across a wide range of the income spectrum will be subject to the AMT because personal exemptions are not allowed against the AMT. This report will be updated as legislative action warrants or as new data become available.
The alternative minimum tax for individuals (AMT) was originally enacted to ensure that high-income taxpayers paid a fair share of the federal income tax. However, the lack of indexation of the AMT coupled with the recent reductions in the regular income tax has greatly expanded the potential impact of the AMT.1
Temporary increases in the AMT exemptions expired at the end of 2007. If legislative changes do not extend the expired changes, then the number of taxpayers subject to the AMT will rise from around 5 million in 2007 to 24.2 million in 2008. Further, by 2010, some 31 million taxpayers will be subject to the AMT.2 Taxpayers with incomes in the $100,000 to $500,000 income range will be the hardest hit: 88% of these taxpayers will be subject to the AMT in 2010.
Itemized deductions for state/local taxes (62.7%), personal exemptions (22.4%), and miscellaneous itemized deductions (11.4%) together account for 96% of the preference items that are subject to tax under the AMT but not subject to tax under the regular income tax.3 As a result, over certain income ranges, taxpayers who claim itemized deductions for state/local taxes, miscellaneous deductions, and/or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics.
Table 1 and Table 2 show for 2005 and 2006, respectively, the percentage of taxpayers in each state that were subject to the AMT. Of all the states, South Dakota, Tennessee, Alaska, Mississippi, and North Dakota had the smallest percentage of taxpayers subject to the AMT. In these five states, roughly 1% of taxpayers were on the AMT in 2006. These are states in which either many taxpayers have relatively low incomes, or state/local taxes that are deductible from the federal income tax are relatively low. As a result of the combination of these factors, taxpayers in these states tend not to itemize their deductions and hence, are less likely to be subject to the AMT than taxpayers in other states.4
On the other hand, New Jersey, Connecticut, New York, the District of Columbia, and Maryland were the states with the largest percentage of taxpayers subject to the AMT. For instance, in New Jersey, about 65 out of every 1,000 taxpayers fell under the AMT in 2006. In these states, many taxpayers have relatively high incomes and the state/local tax burden is also relatively high. The combination of these factors produces a larger number of itemizers and, consequently, a larger percentage of taxpayers being captured by the AMT.
Note that absent legislative change (a patch), whether a married taxpayer has itemized deductions for state/local taxes and/or miscellaneous deductions will become a less important factor in determining whether taxpayers are subject to the AMT. This will result because, if the AMT is not modified, then across a broad range of the income spectrum all married taxpayers will be subject to the AMT whether they itemize their deductions or not.
The potentially expanding impact of the AMT has been mitigated through temporary increases in the basic exemption for the AMT and temporary changes that allow taxpayers to use nonrefundable personal tax credits to reduce their AMT liabilities. The most recent increase in the basic AMT exemption occurred in December 2007 with the enactment of the Tax Increase Prevention Act of 2007 (TIPA, P.L. 110-166). Under provisions of this act, the AMT exemption for 2007 was set at $66,250 for joint returns and $44,350 for unmarried taxpayers. In addition, this act allows taxpayers to temporarily use nonrefundable tax credits to offset AMT liability. In 2008, the basic AMT exemption is scheduled to decrease to its prior law level of $45,000 for joint returns ($35,750 for unmarried taxpayers), and nonrefundable tax credits will not be allowed to offset AMT liability.
Because the temporary patches to the AMT expired at the end of 2007, in 2008 roughly 21 million more taxpayers will likely be subject to the AMT.5 An increase of this magnitude will affect taxpayers in every state, regardless of whether taxpayers in that state itemize and deduct their state/local taxes and/or miscellaneous deductions from their federal tax returns.
For example, in 2006, 27,217 taxpayers in Tennessee were subject to the AMT. Thus, Tennessee taxpayers accounted for only 0.66% of the total AMT returns filed in the United States that year. However, if that percentage remains constant, and the temporary patches to the AMT expire, then in 2008 up to 159,000 (0.66% times 24.156 million) taxpayers in Tennessee could be subject to the AMT.
Table 3 shows the potential number of AMT returns by state in 2008 if the temporary patches to the AMT are not extended. The CRS calculations are an extrapolation based on the assumption that the ratio of AMT taxpayers in each state to total AMT taxpayers in the entire country will remain the same in 2008 as it was in 2006. The methodology makes assumptions that could be challenged, but still provides a reasonable estimate of the potential impact of the AMT in 2008 absent legislative changes. The House Ways and Means Committee has released projections of the number of AMT taxpayers by congressional district. These projections can be found on the committee's website.6
The Joint Committee on Taxation estimates that the one-year AMT patch for 2008 would reduce federal revenues by almost $61.5 billion over 10 years.7
Table 1. Number of Alternative Minimum Taxpayers by State, Tax Year 2005
(returns in thousands)
Number of AMT returns
Rank State returns AMT returns as % of total
U.S.A. 135,258 4,068 3.01%
47 Alabama 1,956 21 1.07%
48 Alaska 347 3 0.86%
27 Arizona 2,474 49 1.98%
39 Arkansas 1,154 17 1.47%
6 California 15,573 757 4.86%
23 Colorado 2,160 46 2.13%
3 Connecticut 1,682 99 5.89%
21 Delaware 403 9 2.23%
4 District of Columbia 282 15 5.32%
28 Florida 8,411 161 1.91%
15 Georgia 3,918 102 2.60%
22 Hawaii 621 14 2.25%
30 Idaho 614 12 1.95%
13 Illinois 5,836 153 2.62%
41 Indiana 2,884 41 1.42%
37 Iowa 1,347 22 1.63%
24 Kansas 1,242 26 2.09%
35 Kentucky 1,780 31 1.74%
43 Louisiana 1,770 22 1.24%
19 Maine 621 15 2.42%
5 Maryland 2,674 134 5.01%
7 Massachusetts 3,083 146 4.74%
26 Michigan 4,563 93 2.04%
10 Minnesota 2,446 74 3.03%
50 Mississippi 1,170 11 0.94%
33 Missouri 2,611 47 1.80%
32 Montana 448 8 1.79%
25 Nebraska 816 17 2.08%
38 Nevada 1,150 18 1.57%
20 New Hampshire 650 15 2.31%
1 New Jersey 4,153 283 6.81%
42 New Mexico 843 11 1.30%
2 New York 8,716 523 6.00%
18 North Carolina 3,880 93 2.40%
46 North Dakota 307 3 0.98%
12 Ohio 5,460 152 2.78%
40 Oklahoma 1,496 21 1.40%
11 Oregon 1,645 48 2.92%
14 Pennsylvania 5,867 154 2.62%
9 Rhode Island 502 17 3.39%
31 South Carolina 1,885 35 1.86%
51 South Dakota 367 3 0.82%
49 Tennessee 2,658 25 0.94%
34 Texas 9,728 172 1.77%
29 Utah 1,031 19 1.84%
16 Vermont 310 8 2.58%
8 Virginia 3,541 124 3.50%
36 Washington 2,932 50 1.71%
45 West Virginia 754 9 1.19%
17 Wisconsin 2,656 65 2.45%
44 Wyoming 248 3 1.21%
Source: Department of the Treasury. Internal Revenue Service, available
at [http://www.irs.ustreas.gov/pub/irs-soi/05in54cm.xls
2008.
Table 2. Number of Alternative Minimum Taxpayers by State, Tax Year 2006
Number of AMT returns
Rank State returns AMT returns as % of total
U.S.A. 139,230,752 4,117,686 2.96%
45 Alabama 2,028,820 23,864 1.18%
49 Alaska 341,329 3,469 1.02%
28 Arizona 2,596,639 51,028 1.97%
43 Arkansas 1,184,565 16,828 1.42%
6 California 15,987,519 735,476 4.60%
18 Colorado 2,228,867 52,903 2.37%
2 Connecticut 1,714,027 96,823 5.65%
19 Delaware 412,049 9,628 2.34%
4 District of Columbia 287,723 15,017 5.22%
29 Florida 8,656,007 168,866 1.95%
15 Georgia 4,075,882 102,159 2.51%
24 Hawaii 638,212 13,428 2.10%
27 Idaho 641,026 12,623 1.97%
12 Illinois 5,979,694 160,305 2.68%
41 Indiana 2,969,013 43,228 1.46%
37 Iowa 1,378,083 22,905 1.66%
23 Kansas 1,289,274 27,609 2.14%
38 Kentucky 1,822,852 28,172 1.55%
36 Louisiana 1,894,724 32,537 1.72%
22 Maine 633,971 14,004 2.21%
5 Maryland 2,717,418 127,303 4.68%
7 Massachusetts 3,144,359 143,615 4.57%
31 Michigan 4,655,310 89,131 1.91%
10 Minnesota 2,559,718 74,282 2.90%
48 Mississippi 1,234,286 13,931 1.13%
35 Missouri 2,720,684 48,385 1.78%
33 Montana 465,929 8,442 1.81%
26 Nebraska 833,432 16,896 2.03%
40 Nevada 1,210,794 18,198 1.50%
20 New Hampshire 660,961 14,917 2.26%
1 New Jersey 4,229,622 273,589 6.47%
44 New Mexico 887,176 11,833 1.33%
3 New York 8,964,337 493,391 5.50%
17 North Carolina 4,005,613 98,871 2.47%
47 North Dakota 314,622 3,651 1.16%
14 Ohio 5,520,709 138,775 2.51%
39 Oklahoma 1,544,498 23,694 1.53%
11 Oregon 1,695,185 48,753 2.88%
13 Pennsylvania 6,040,716 152,705 2.53%
9 Rhode Island 516,906 15,705 3.04%
30 South Carolina 1,948,517 37,513 1.93%
51 South Dakota 377,808 3,640 0.96%
50 Tennessee 2,742,268 27,127 0.99%
34 Texas 10,090,061 180,948 1.79%
25 Utah 1,075,222 21,922 2.04%
16 Vermont 319,131 7,933 2.49%
8 Virginia 3,618,883 127,929 3.54%
32 Washington 3,017,975 54,697 1.81%
46 West Virginia 770,261 9,056 1.18%
21 Wisconsin 2,737,590 61,727 2.25%
42 Wyoming 257,852 3,703 1.44%
Source: Department of the Treasury. Internal Revenue Service, available
at [http://www.irs.ustreas.gov/pub/irs-soi/06in54cm.xls
2008.
Table 3. Potential AMT Returns by State, Tax Year 2008
State AMT returns in 2006 Potential AMT returns
in 2008 (CRS)
U.S.A. 4,117,686 24,156,000
Alabama 23,864 139,996
Alaska 3,469 20,351
Arizona 51,028 299,351
Arkansas 16,828 98,720
California 735,476 4,314,598
Colorado 52,903 310,350
Connecticut 96,823 568,003
Delaware 9,628 56,482
District of Columbia 15,017 88,096
Florida 168,866 990,636
Georgia 102,159 599,306
Hawaii 13,428 78,774
Idaho 12,623 74,052
Illinois 160,305 940,414
Indiana 43,228 253,593
Iowa 22,905 134,370
Kansas 27,609 161,965
Kentucky 28,172 165,268
Louisiana 32,537 190,875
Maine 14,004 82,153
Maryland 127,303 746,811
Massachusetts 143,615 842,503
Michigan 89,131 522,878
Minnesota 74,282 435,768
Mississippi 13,931 81,725
Missouri 48,385 283,846
Montana 8,442 49,524
Nebraska 16,896 99,119
Nevada 18,198 106,757
New Hampshire 14,917 87,509
New Jersey 273,589 1,604,983
New Mexico 11,833 69,417
New York 493,391 2,894,430
North Carolina 98,871 580,017
North Dakota 3,651 21,418
Ohio 138,775 814,110
Oklahoma 23,694 138,999
Oregon 48,753 286,005
Pennsylvania 152,705 895,829
Rhode Island 15,705 92,132
South Carolina 37,513 220,066
South Dakota 3,640 21,354
Tennessee 27,127 159,138
Texas 180,948 1,061,514
Utah 21,922 128,603
Vermont 7,933 46,538
Virginia 127,929 750,483
Washington 54,697 320,875
West Virginia 9,056 53,126
Wisconsin 61,727 362,115
Wyoming 3,703 21,723
Source: Calculations by CRS assuming that the ratio of AMT taxpayers in
each state to total AMT taxpayers in the entire country will remain the same
in 2008 as it was in 2006. Projected Number of AMT taxpayers in the U.S. in
2008 are based on data from U.S. Congress, Joint Committee on Taxation,
"Present Law and Background Relating to the Alternative Minimum Tax,"
JCX-38-07, June 25, 2007.
1 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire.
2 U.S. Congress, Joint Committee on Taxation, "Present Law and Background Relating to the Alternative Minimum Tax," JCX-38-07, June 25, 2007.
3 JCT, June 25, 2007, p. 18.
4 For more on the deductibility of state and local taxes, see CRS Report RL32781, Federal Deductibility of State and Local Taxes, by Steven Maguire.
5 JCT, June 25, 2007.
6 The congressional district projections for number of AMT filers in 2008 are at the following website: [http://waysandmeans.house.gov/MoreInfo.asp?section=46], visited July 15, 2008.
7 U.S. Congress, Joint Committee on Taxation, "Estimated Revenue Effects of H.R. 6275, the 'Alternative Minimum Tax Relief Act of 2008,' Scheduled for Markup by the Committee on Ways and Means on June 18, 2008," JCX-51-08, June 17, 2008.
END OF FOOTNOTES
- AuthorsMaguire, Steven
- Institutional AuthorsCongressional Research Service
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2008-16632
- Tax Analysts Electronic Citation2008 TNT 147-28