Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012

Report that breaks down, state-by-state, the percentage of taxpayers subject to Alternative Minimum Tax (AMT), and also maps out these projections for the year 2012.

Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Steven Maguire Specialist in Public Finance December 4, 2012 Congressional Research Service 7-5700 www.crs.gov RS22083 CRS Report for Congress Prepared for Members and Committees of Congress Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Summary The alternative minimum tax (AMT) is a second federal income tax that operates along side the regular income tax. The AMT is intended to ensure that all taxpayers pay at least a minimum amount of tax on income. The AMT disallows or otherwise limits a variety of exemptions and deductions to achieve this objective. Specifically, personal exemptions, itemized deductions for state/local taxes, and miscellaneous itemized deductions 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. As a result, over certain income ranges, taxpayers who claim itemized deductions for state and local taxes, claim miscellaneous deductions, or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics. In 2010, 4.02 million taxpayers were subject to the AMT, a slight increase from 3.88 million taxpayers in 2009. In 2010, New Jersey, Connecticut, the District of Columbia, and New York had the highest percentage of taxpayers subject to the AMT. Mississippi, Tennessee, Alabama, and South Dakota had the lowest percentage of taxpayers subject to the AMT. In 2012, absent an increase of the AMT exemption amount, 32.4 million taxpayers will be subject to the AMT. At that time, whether a married taxpayer has itemized deductions for state and 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 incomes will be subject to the AMT because personal exemptions are not allowed against the AMT. The President’s FY2013 Budget proposes an alternative budget baseline where the AMT is permanently indexed for inflation based on 2011 parameters. The estimated revenue loss, assuming the tax cuts enacted from 2001 to 2003 are extended for middle income taxpayers, would be $1.9 trillion over the FY2013-FY2022 budget window. This report will be updated as legislative action warrants or as new data become available. Congressional Research Service Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Contents Figures Figure 1. Percentage of Taxpayers in Each State Subject to AMT in 2010 ..................................... 2 Tables Table 1. Number of Alternative Minimum Taxpayers by State, Tax Year 2009 .............................. 4 Table 2. Number of Alternative Minimum Taxpayers by State, Tax Year 2010 .............................. 6 Table 3. Estimated Number of Alternative Minimum Tax Taxpayers by State, Tax Year 2012 .............................................................................................................................................. 8 Congressional Research Service Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 T he 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 expire at the end of 2011. The Urban-Brookings Tax Policy Center estimates that in 2012, 32.4 million taxpayers will be subject to the AMT.2 Taxpayers with incomes in the $200,000 to $500,000 income range will be the hardest hit.3 Itemized deductions for state and 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.4 As a result, over certain income ranges, taxpayers who claim itemized deductions for state and local taxes, claim 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 2009 and 2010 (the latest state-by-state data), respectively, the percentage of taxpayers in each state that were subject to the AMT. Figure 1 maps the percentage of AMT taxpayers by state for the 2010 tax year. Nationally, 2.8% of taxpayers were subject to the AMT in 2010. Of all the states, Mississippi, Tennessee, Alabama, and South Dakota had the smallest percentage of taxpayers subject to the AMT. In these four states, just over 1% of taxpayers were on the AMT in 2010. These are states in which either many taxpayers have relatively low incomes, or state and 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.5 On the other hand, New Jersey, Connecticut, the District of Columbia, and New York were the states with the largest percentage of taxpayers subject to the AMT. In these four states, over 5% of taxpayers were affected by the AMT. For instance, in New Jersey, about 64 out of every 1,000 taxpayers fell under the AMT in 2010. In these states, many taxpayers have relatively high incomes and the state and 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 (an AMT patch), whether a married taxpayer has itemized deductions for state and 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 1 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire. Urban-Brookings Tax Policy Microsimulation Model (version 0412-07), “T12-0170 – Number of AMT Taxpayers with and without an AMT Fix, 2011-2013,” September 13, 2012. Data available at http://www.taxpolicycenter.org/ numbers/Content/PDF/T12-0170.pdf. 3 U.S. Congress, Joint Committee on Taxation, “Present Law and Background Data related to the Federal Tax System in Effect for 2010 and 2011,” JCX-19-10, March 22, 2010, p. 43. 4 U.S. Congress, Joint Committee on Taxation, “Present Law and Background Relating to the Alternative Minimum Tax,” JCX-38-07, June 25, 2007, p. 18. 5 For more on the deductibility of state and local taxes, see CRS Report RL32781, Federal Deductibility of State and Local Taxes, by Steven Maguire. 2 Congressional Research Service 1 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 AMT is not modified, then across a broad range of the income spectrum a large portion of married taxpayers will be subject to the AMT. This is true whether they itemize their deductions or not because personal exemptions are not allowed against the AMT. Figure 1. Percentage of Taxpayers in Each State Subject to AMT in 2010 Source: CRS representation of data from Department of the Treasury, Internal Revenue Service, available at http://www.irs.gov/uac/SOI-Tax-Stats—Historic-Table-2, visited November 27, 2012. Notes: Table 2 reports the data used to generate this graphic. 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. In December 2007, The Tax Increase Prevention Act of 2007 (TIPA, P.L. 110-166) patched the AMT for the 2007 tax year. In October 2008, The Tax Extenders and Alternative Minimum Tax Relief Act (which was included with the Emergency Economic Stabilization Act of 2008, P.L. 110-343), extended the AMT patch for the 2008 tax year. In the 111th Congress, P.L. 111-5, The American Recovery and Reinvestment Act of 2009, included a one-year patch for the 2009 tax year. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA, P.L. 111-312), patched the AMT for 2010 and 2011 tax years. Under TRUIRJCA, the 2010 exemptions amounts are $47,450 for individuals and $72,450 for joint filers. For 2011, the exemption amounts increase to $48,450 and $74,450, respectively. In 2012 and beyond, absent legislative change, the AMT exemption reverts to $45,000 for joint returns ($35,750 for unmarried taxpayers), and some nonrefundable tax credits are not allowed against AMT liability. Congressional Research Service 2 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Because the AMT patch expired at the end of 2011, in 2012 roughly 32.4 million taxpayers will likely be subject to the AMT if no patch is enacted.6 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, 31,896 taxpayers in Tennessee were subject to the AMT in 2010. Thus, Tennessee taxpayers accounted for 0.78% of the total AMT returns filed in the United States that year. However, if that percentage of total AMT returns remains constant, then in 2012 roughly 360,226 (0.78% times 32.4 million) taxpayers in Tennessee could be affected by the AMT. Table 3 shows the potential number of AMT returns by state in 2012 if the patch to the AMT is 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 2012 as it was in 2010. The methodology makes assumptions that could be challenged, but still provides a reasonable estimate of the potential impact of the AMT in 2012 absent legislative changes.7 The President’s FY2013 alternative budget baseline proposes a permanently indexed AMT based on the 2011 parameters. The revenue loss is $1.9 trillion with the assumption that the tax cuts enacted from 2001 to 2003 are also extended for all but the highest income earners.8 These proposed tax cuts are not extended to joint filers with income over $250,000, single filers with income over $200,000, and heads of household with income over $225,000. 6 Urban-Brookings Tax Policy Microsimulation Model (version 0412-07), “T12-0170 – Number of AMT Taxpayers with and without an AMT Fix, 2011-2013,” September 13, 2012. 7 For example, if the AMT is not patched, many more taxpayers in lower income cohorts would be subject to the AMT. Thus, the share of AMT taxpayers in states with relatively lower average income could be greater than projected in this report. 8 U.S. Treasury, General Explanation of the Administration’s 2013 Budget Proposal, February 2012, p. 197. Congressional Research Service 3 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Table 1. Number of Alternative Minimum Taxpayers by State,Tax Year 2009 Rank State U.S.A. Number of Returns AMT Returns AMT Returns as % of Total 141,458,638 3,844,217 2.7% 2,048,831 23,895 1.2% 38 Number of Returns AMT Returns AMT Returns as % of Total Montana 472,039 7,027 1.5% 846,101 16,546 2.0% 1,243,552 15,412 1.2% 659,001 14,979 2.3% Rank State 47 Alabama 48 Alaska 357,870 4,103 1.1% 24 Nebraska 35 Arizona 2,670,661 41,699 1.6% 44 Nevada 41 Arkansas 1,211,644 17,578 1.5% 15 New Hampshire 7 California 16,384,130 685,141 4.2% 1 New Jersey 4,236,533 265,495 6.3% 17 Colorado 2,331,974 51,537 2.2% 46 New Mexico 912,316 10,695 1.2% 2 Connecticut 1,711,715 93,729 5.5% 3 New York 9,116,699 477,166 5.2% 20 Delaware 420,472 8,865 2.1% 19 North Carolina 4,144,875 87,720 2.1% 4 District of Columbia 312,067 16,133 5.2% 37 North Dakota 322,972 4,839 1.5% 34 Florida 8,910,654 141,118 1.6% 16 Ohio 5,409,661 120,055 2.2% 13 Georgia 4,447,966 106,477 2.4% 39 Oklahoma 1,585,616 23,342 1.5% 30 Hawaii 648,846 11,122 1.7% 14 Oregon 1,732,774 40,127 2.3% 40 Idaho 657,773 9,617 1.5% 12 Pennsylvania 6,058,513 150,253 2.5% 11 Illinois 6,008,183 160,561 2.7% 10 Rhode Island 501,586 13,669 2.7% 42 Indiana 2,951,362 41,535 1.4% 36 South Carolina 2,024,495 30,931 1.5% 31 Iowa 1,392,004 23,816 1.7% 50 South Dakota 385,157 4,238 1.1% 21 Kansas 1,310,164 27,442 2.1% 51 Tennessee 2,794,712 29,024 1.0% 33 Kentucky 1,841,152 29,892 1.6% 25 Texas 10,784,887 206,222 1.9% 28 Louisiana 1,960,107 33,875 1.7% 32 Utah 1,124,569 19,029 1.7% 23 Maine 624,567 12,249 2.0% 18 Vermont 316,053 6,791 2.1% 5 Maryland 2,751,233 132,676 4.8% 8 Virginia 3,685,674 130,531 3.5% 6 Massachusetts 3,171,888 141,581 4.5% 29 Washington 3,144,952 54,351 1.7% 26 Michigan 4,534,729 81,589 1.8% 43 West Virginia 778,130 9,764 1.3% CRS-4 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Rank State Number of Returns AMT Returns AMT Returns as % of Total Rank State Number of Returns AMT Returns AMT Returns as % of Total 9 Minnesota 2,541,797 70,575 2.8% 22 Wisconsin 2,728,034 55,952 2.1% 49 Mississippi 1,241,390 14,012 1.1% 45 Wyoming 269,357 3,305 1.2% 27 Missouri 2,683,562 47,551 1.8% 1,053,639 18,386 1.7% Other Areas* Source: Department of the Treasury, Internal Revenue Service, available at http://www.irs.gov/uac/SOI-Tax-Stats—Historic-Table-2, visited November 27, 2012. Notes: * Includes, for example, returns filed from Army Post Office and Fleet Post Office addresses by members of the armed forces stationed overseas; returns filed by other U.S. citizens abroad; and returns filed by residents of Puerto Rico with income from sources outside Puerto Rico or with income earned as U.S. government employees. CRS-5 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Table 2. Number of Alternative Minimum Taxpayers by State,Tax Year 2010 Rank State U.S.A. Number of Returns AMT Returns AMT Returns as % of Total 144,002,309 4,063,557 100.00% 2,102,251 24,756 0.61% 46 Number of Returns AMT Returns AMT Returns as % of Total Montana 474,851 7,461 0.18% 854,072 17,578 0.43% 1,263,928 15,725 0.39% 663,922 16,327 0.40% Rank State 31 Alabama 50 Alaska 373,765 4,611 0.11% 34 Nebraska 23 Arizona 2,718,609 42,604 1.05% 37 Nevada 33 Arkansas 1,224,333 18,363 0.45% 36 New Hampshire 1 California 16,683,781 745,665 18.35% 3 New Jersey 4,285,543 274,572 6.76% 19 Colorado 2,369,949 56,282 1.39% 42 New Mexico 913,001 11,441 0.28% 13 Connecticut 1,727,550 97,467 2.40% 2 New York 9,272,053 493,556 12.15% 45 Delaware 427,754 9,760 0.24% 14 North Carolina 4,202,766 93,665 2.31% 35 District of Columbia 322,864 17,546 0.43% 48 North Dakota 330,462 5,545 0.14% 7 Florida 9,631,252 150,725 3.71% 11 Ohio 5,437,370 126,117 3.10% 12 Georgia 4,589,611 110,177 2.71% 30 Oklahoma 1,590,384 25,139 0.62% 41 Hawaii 653,371 11,670 0.29% 22 Oregon 1,743,270 43,418 1.07% 44 Idaho 663,291 9,990 0.25% 6 Pennsylvania 6,129,987 157,469 3.88% 5 Illinois 6,043,865 169,384 4.17% 39 Rhode Island 509,091 14,141 0.35% 21 Indiana 2,981,543 43,960 1.08% 25 South Carolina 2,051,823 32,218 0.79% 29 Iowa 1,399,927 25,149 0.62% 49 South Dakota 393,777 4,658 0.11% 28 Kansas 1,307,115 28,445 0.70% 26 Tennessee 2,846,579 31,896 0.78% 27 Kentucky 1,856,466 30,957 0.76% 4 Texas 10,995,576 222,513 5.48% 24 Louisiana 1,990,904 33,033 0.81% 32 Utah 1,134,626 19,841 0.49% 40 Maine 625,057 12,776 0.31% 47 Vermont 317,921 7,109 0.17% 10 Maryland 2,787,356 136,214 3.35% 9 Virginia 3,729,464 139,136 3.42% 8 Massachusetts 3,203,128 150,339 3.70% 17 Washington 3,169,103 59,502 1.46% CRS-6 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Rank State Number of Returns AMT Returns AMT Returns as % of Total Rank State Number of Returns AMT Returns AMT Returns as % of Total 783,239 10,121 0.25% 15 Michigan 4,606,814 83,515 2.06% 43 West Virginia 16 Minnesota 2,561,055 75,458 1.86% 18 Wisconsin 2,741,669 58,950 1.45% 38 Mississippi 1,283,495 14,270 0.35% 51 Wyoming 276,444 3,568 0.09% 20 Missouri 2,688,872 48,856 1.20% 1,067,410 19,919 0.49% Other Areas* Source: Department of the Treasury, Internal Revenue Service, available at http://www.irs.gov/uac/SOI-Tax-Stats—Historic-Table-2, visited November 27, 2012. Notes: * Includes, for example, returns filed from Army Post Office and Fleet Post Office addresses by members of the armed forces stationed overseas; returns filed by other U.S. citizens abroad; and returns filed by residents of Puerto Rico with income from sources outside Puerto Rico or with income earned as U.S. government employees. CRS-7 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Table 3. Estimated Number of Alternative Minimum Tax Taxpayers by State,Tax Year 2012 AMT Returns in 2010 Potential AMT Returns in 2012 (CRS) AMT Returns in 2010 Potential AMT Returns in 2012 (CRS) 4,063,557 32,400,000 Alabama 24,756 197,387 Montana 7,461 59,489 Alaska 4,611 36,765 Nebraska 17,578 140,155 Arizona 42,604 339,695 Nevada 15,725 125,380 Arkansas 18,363 146,414 New Hampshire 16,327 130,180 California 745,665 5,945,418 New Jersey 274,572 2,189,248 Colorado 56,282 448,754 New Mexico 11,441 91,223 Connecticut 97,467 777,135 New York 493,556 3,935,275 Delaware 9,760 77,820 North Carolina 93,665 746,820 District of Columbia 17,546 139,900 North Dakota 5,545 44,212 Florida 150,725 1,201,777 Ohio 126,117 1,005,570 Georgia 110,177 878,475 Oklahoma 25,139 200,441 Hawaii 11,670 93,049 Oregon 43,418 346,185 Idaho 9,990 79,653 Pennsylvania 157,469 1,255,549 Illinois 169,384 1,350,551 Rhode Island 14,141 112,751 Indiana 43,960 350,507 South Carolina 32,218 256,884 Iowa 25,149 200,521 South Dakota 4,658 37,140 Kansas 28,445 226,801 Tennessee 31,896 254,317 Kentucky 30,957 246,830 Texas 222,513 1,774,165 Louisiana 33,033 263,382 Utah 19,841 158,198 Maine 12,776 101,867 Vermont 7,109 56,682 Maryland 136,214 1,086,076 Virginia 139,136 1,109,374 Massachusetts 150,339 1,198,699 Washington 59,502 474,428 State U.S.A. CRS-8 State Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 AMT Returns in 2010 Potential AMT Returns in 2012 (CRS) Michigan 83,515 665,891 Minnesota 75,458 Mississippi Missouri State AMT Returns in 2010 Potential AMT Returns in 2012 (CRS) West Virginia 10,121 80,698 601,650 Wisconsin 58,950 470,027 14,270 113,779 Wyoming 3,568 28,449 48,856 389,544 Other Areas* 19,919 158,820 State Source: CRS Calculations based on Department of the Treasury, Internal Revenue Service data, available at http://www.irs.gov/uac/SOI-Tax-Stats—Historic-Table-2, visited November 27, 2012. Notes: * Includes, for example, returns filed from Army Post Office and Fleet Post Office addresses by members of the armed forces stationed overseas; returns filed by other U.S. citizens abroad; and returns filed by residents of Puerto Rico with income from sources outside Puerto Rico or with income earned as U.S. government employees. CRS-9 Alternative Minimum Taxpayers by State: 2009, 2010, and Projections for 2012 Author Contact Information Steven Maguire Specialist in Public Finance smaguire@crs.loc.gov, 7-7841 Congressional Research Service 10