AMT Coverage by State, 2003

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© TAX ANALYSTS. Reprinted with permission.

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Many taxpayers must calculate their liability under two sets of rules: those applying to the regular income tax and those under the alternative minimum tax. If they owe more tax under the alternative rules, the difference is paid as AMT. The AMT hits people in some states harder than others. State and local income and property taxes are allowed as itemized deductions against the regular income tax, but not the AMT. As a result, taxpayers in states that rely more heavily on income taxes are more likely to be on the AMT than taxpayers in other states. (A temporary provision allowed taxpayers to elect to deduct sales taxes, rather than income taxes, in 2004 and 2005.) States also vary based on the income of their residents. Higher-income people are more likely to be on the AMT because households with incomes below the AMT exemption ($58,000 for couples and $40,250 for singles in 2003) are not subject to the tax, and the AMT exemption phases out at incomes above $150,000.

The map below shows the proportion of taxpayers on the AMT in each state in 2003. In two-thirds of states, less than 2 percent of taxpayers were subject to the AMT, but in New York, 6 percent of taxpayers paid AMT, and almost the same percentage (5.9 percent) owed AMT in neighboring New Jersey. More than 4 percent of taxpayers in Connecticut, California, and the District of Columbia were also subject to the AMT.

Overall, 2.4 million taxpayers (1.8 percent) were subject to the AMT in 2003. However, the current higher AMT exemption is a temporary provision scheduled to decline sharply in 2006. Absent a change in law, more than 18 million taxpayers will be affected by the tax in 2006. Even taxpayers in low-tax states will feel the pinch.

For more on the AMT, see Burman et al., 2004, ‘‘The Individual Alternative Minimum Tax: A Data Update,’’ available at http://www.taxpolicycenter.org/publications/template.cfm?PubID=411051.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, provides independent, timely, and accessible analysis of current and emerging tax policy issues for the public, journalists, policymakers, and academic researchers. For more tax facts, see http://www.taxpolicycenter.org/taxfacts.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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