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1 (June 14, 2006)

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                                                                Order Code RS22083
                                                                       June 14, 2006



 CRS Report for Congress

              Received through the CRS Web



    Alternative Minimum Taxpayers By State:

        2003, 2004, and Projections for 2007

                           Gregg A. Esenwein
                       Specialist in Public Finance
                    Government and Finance Division

Summary


     Personal exemptions, itemized deductions for state/local taxes, and miscellaneous
 itemized deductions account for 90% of the preference items that are subject to tax
 under the alternative minimum tax (AMT) but not subject to tax under the regular
 income tax. As a result, over certain income ranges, taxpayers who claim itemized
 deductions for state/local taxes, miscellaneous deductions, or have large families are
 more likely to fall under the AMT than taxpayers who do not have these characteristics.

     In 2003, just over 2 million taxpayers were subject to the AMT. By 2004, some
 3 million taxpayers were subject to the AMT. New Jersey, New York, Connecticut, the
 District of Columbia, and California had the highest percentage of taxpayers subject to
 the AMT. Tennessee, South Dakota, Alaska, Alabama, and Mississippi had the lowest
 percentage of taxpayers subject to the AMT.

     By 2007, absent legislative change, some 23 million taxpayers will be subject to
 the AMT. At that time, whether a married taxpayer has itemized deductions for
 state/local taxes and/or miscellaneous deductions will become a much less important
 factor in determining AMT coverage than it is at present. 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. 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    The alternative minimum tax for individuals (AMT) was originally enacted to ensure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.

    Temporary increases in the AMT exemptions are scheduled to expire at the end of
2006. If this occurs, then the number of taxpayers subject to the AMT will rise from
around 3.1 million in 2004 to over 23 million in 2007. Absent legislation, by 2010, some


Congressional Research Service + The Library of Congress


1 See CRS Report RL30149, The Alternative Minimum Taxfor Individuals, by Gregg Esenwein.

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