ECONOMIC AND BUDGET ISSUE BRIEF

The Individual Alternative Minimum Tax

For the past four decades, the individual income tax has 

consisted of two parallel tax systems: the regular tax and 

an alternative tax, which was intended to impose taxes on 

high-income individuals who use tax preferences to 

greatly reduce or eliminate their liability under the regular income tax.1

 The current version of the alternative tax, 

the alternative minimum tax (AMT), requires people to 

recalculate their taxes under rules that include in their 

taxable income certain types of income that are exempt 

from the regular income tax and that do not allow certain 

exemptions, deductions, and other preferences. (For 

details on the calculation of the AMT, see Box 1.) That 

second set of rules raises marginal tax rates (the tax on an 

additional dollar of income) for some taxpayers; modifies 

or limits various credits, deductions, and exclusions that 

apply to regular income taxes; and adds to the complexity 

of the tax system.

For most of its existence, the AMT has played a minor 

role in the tax system, accounting for less than 2 percent 

of individual income tax revenues (or 1 percent of total 

revenues) and affecting less than 1 percent of taxpayers in 

any year before 2000.2

 Since then, the tax would have 

reached more and more taxpayers (because, unlike the 

parameters of the regular income tax, those of the AMT 

are not indexed for inflation), but lawmakers have intervened each year to slow that expansion. In addition, a 

series of reductions in the regular income tax enacted 

starting in 2001 would have caused even more returns to 

be subject to the AMT were it not for the series of temporary adjustments (often called “patches”) that lawmakers 

made to the alternative tax. 

The most recent AMT patch expired at the end of 

calendar year 2009. Without further adjustments, the 

impact of the AMT will expand quickly this year and 

continue to expand in subsequent years, becoming a 

more significant source of future revenues. As the reach of 

the AMT grows under current law, many taxpayers will 

face a fundamentally altered tax structure. If nothing is 

changed this year, one in six taxpayers will be affected by 

the AMT, paying on average an additional $3,900 in tax, 

and nearly every married taxpayer with income between 

$100,000 and $500,000 will owe some alternative tax. 

Because of the particular tax preferences and exemptions 

disallowed under the AMT, that tax structure is more 

likely to affect married couples, large families, and taxpayers in states with high state and local taxes. 

As an increasing number of taxpayers incur the AMT, 

pressures to permanently reduce, eliminate, or otherwise 

modify the tax are likely to grow. However, restructuring 

the AMT to limit its impact would reduce federal revenues and alter the distribution of tax burdens. If the 

resulting revenue losses were offset by other tax increases 

or spending reductions, some taxpayers would benefit 

and others would be disadvantaged. If the revenue losses 

were not offset, federal budget deficits would rise and the 

cost would be shifted onto future taxpayers.

The Expanding Scope of the AMT

If current law remains unchanged, the role of the AMT in 

the tax system will expand rapidly over time. With the 

expiration of a temporary increase in the AMT’s exemption amounts, the number of taxpayers affected by the 

AMT will jump from 4 million in calendar year 2009 to 

CBO A series of issue summaries from

the Congressional Budget Office

JANUARY 15, 2010

1. From the committee report accompanying the Tax Equity and 

Fiscal Responsibility Act of 1982: “The committee has amended 

the present minimum tax provisions applying to individuals with 

one overriding objective: no taxpayer with substantial economic 

income should be able to avoid all tax liability by using exclusions, 

deductions, and credits.” Tax Equity and Fiscal Responsibility Act 

of 1982, S. Rpt. No. 97-494, Vol. 1, at 108 (July 12, 1982).

2. For additional historical data, see Joint Committee on Taxation, 

Present Law and Background Relating to the Individual Alternative 

Minimum Tax (JCX-10-07), March 5, 2007; and Katherine Lim 

and Jeff Rohaly, The Individual Alternative Minimum Tax: Historical Data and Projections, Updated October 2009 (Washington, 

D.C.: Urban-Brookings Tax Policy Center, October 5, 2009). 
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Continued

Box 1.

Calculating the Alternative Minimum Tax

The alternative minimum tax (AMT) is defined as 

the addition to regular income taxes, equal to the 

amount, if any, by which AMT liability exceeds 

regular tax liability (after applying appropriate 

credits). Taxpayers who potentially owe the AMT 

must recalculate their taxable income as defined by 

the AMT, apply alternative tax rates, allow for credits 

and other factors, and compare the resulting tentative 

AMT liability against their regular tax liability. Even 

though the AMT is technically the excess of AMT 

over regular tax liability, taxpayers effectively calculate 

their taxes under two systems and pay the higher of 

the two liabilities. 

For the two-thirds of tax filers who claim the standard deduction, the process is fairly simple.1

 If taxpayers elect not to itemize their deductions, they just 

subtract the AMT exemption—$70,950 for married 

taxpayers filing jointly and $46,700 for most other 

taxpayers in 2009—from adjusted gross income and 

apply the two-step tax rates of 26 percent on the first 

$175,000 and 28 percent on any excess. If that 

amount exceeds their regular tax liability (before 

credits), they owe the excess as the AMT. 

The process is more complicated for the one-third of 

taxpayers who itemize their deductions. They calculate taxable AMT income by adding back to regular 

taxable income their personal exemptions and 

specific deductions—for state and local taxes, 

unreimbursed business expenses, other miscellaneous 

deductions, and otherwise deductible medical 

expenses up to 2.5 percent of adjusted gross 

income—and then subtracting the appropriate AMT 

exemption. Applying AMT rates yields their tentative 

AMT liability, before credits. The AMT is the excess, 

if any, of tentative AMT liability over regular tax 

liability, prior to applying any applicable credits.

Consider the example of a married couple with four 

children and income of $160,000, all in wages, in 

2009 (see the table at right). The couple pays 

$10,000 in mortgage interest and $25,000 in state 

and local taxes. Under the AMT, the couple loses 

their six personal exemptions and their deduction for 

state and local taxes. They are allowed the AMT 

exemption of $70,950. Under the AMT, their tax is 

26 percent of AMT taxable income. The tax liability 

for that family would be $18,150 under the regular 

tax system and $20,553 under the AMT.

In recent years, although the use of business tax credits was limited by the AMT, personal tax credits—

including the earned income tax credit and child tax 

credit—were not affected by the AMT. After 2010, 

however, the use of almost all personal and business 

tax credits will be limited by the AMT. After that 

year, taxpayers with AMT liability will not be able to 

use those credits, and other taxpayers may use business and personal credits only to the extent that their 

regular tax liability exceeds their AMT liability.2

 Any 

unused business credits may be carried forward or 

backward for use against regular taxes.

For some taxpayers, AMT calculations are even more 

complicated. People who incur net operating losses, 

deduct accelerated depreciation of business assets, 

receive particular kinds of stock options, or engage in 

other selected activities that get preferential tax treatment face complex rules that determine whether they 

owe the AMT. Some additions to and subtractions 

from income may be shifted forward or backward in 

time, thus requiring additional recordkeeping. Other 

preferences may apply for a relatively small number 

of taxpayers and require calculations under alternative accounting rules.

1. Some taxpayers claiming the standard deduction under the 

regular income tax would find it advantageous to itemize 

under the AMT, making the process more complicated.

2. In 2010, under current law, the child credit, adoption credit, 

and saver’s credit are not limited by the AMT, but certain 

other personal credits are limited. The disallowed personal 

credits for 2010 might become allowed if an AMT patch is 

enacted for that tax year.
ECONOMIC AND BUDGET ISSUE BRIEF

THE INDIVIDUAL ALTERNATIVE MINIMUM TAX 3

27 million in 2010 (see Figure 1).3 Sixteen percent of all 

taxpayers—and 36 percent of married couples—will be 

affected by the AMT in 2010. Because taxpayers must 

pay whichever liability is greater (that owed under the 

regular tax or that owed under the AMT), the number of 

taxpayers affected by the AMT will fall between 2010 and 

2011, when regular tax liabilities will rise as a result of the 

scheduled expiration of tax reductions enacted earlier this 

decade. After 2011, however, the number of taxpayers 

affected by the AMT will continue to rise, growing to 

nearly 35 million by 2019. 

The AMT accounted for just $32 billion, or 3 percent, of 

individual income tax revenues in fiscal year 2009, 

but under current law, AMT receipts will increase to 

$102 billion in 2011, or 8 percent of the total. The 

AMT’s share of all federal receipts will climb from about 

1.5 percent in 2009 to about 3.8 percent in 2011. (For 

the most part, receipts from the AMT in a particular fiscal year reflect tax liabilities for the previous calendar year 

because taxpayers generally pay the AMT when they file 

their tax returns for a given calendar year in April of the 

following year.) After falling sharply in 2012, AMT 

receipts will gradually rise again to $93 billion in 2019 

and continue growing thereafter (see Figure 1). 

Two factors are responsible for the path of AMT receipts 

in the next few years and beyond: inflation and recent 

reductions in regular income taxes. The impact of those 

factors has been muted in recent years by a series of temporary increases in the amounts of income exempt under 

the AMT. But the cumulative effects of those factors will 

return suddenly in 2010 as the AMT’s exemption 

amounts fall back to their pre-2001 levels.

Inflation

Inflation is the most important driver of the long-term 

growth in receipts from the AMT. Under the regular individual income tax, the tax rate brackets, exemptions, and 

certain deductions and credits are adjusted automatically 

to keep pace with inflation. By contrast, the exemption

Box 1. Continued

Calculating the Alternative Minimum Tax

Impact of the Alternative Minimum Tax on One Hypothetical Family, 2009

(Dollars)

Source: Congressional Budget Office calculations based on 2009 parameters.

a. Before applying any personal tax credits, which would apply under both the regular tax and the AMT and would not affect the 

difference in tax.

Income 160,000 Income 160,000

Minus exemptions: 6 x 3,650 -21,900 Minus AMT exemption -70,950

Minus mortgage interest -10,000 Minus mortgage interest -10,000

Minus state and local taxes -25,000 _______ _______

Equals: Taxable Income 103,100 Equals: AMT Taxable Income 79,050

Taxa (Top rate of 25 percent) 18,150 Tentative AMTa (26 percent of taxable income) 20,553

Minus regular taxa -18,150

______

Equals: AMT Liability 2,403

Average Tax Rate on Income (Percent) 11.3 Average Tax Rate on Income (Percent) 12.8

Regular Tax Alternative Minimum Tax

3. The AMT’s exemption amounts for 2009 were $70,950 for married taxpayers filing jointly and $46,700 for most other taxpayers. 

Those amounts reverted to $45,000 and $33,750, respectively, in 

2010.
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 1.

Effects of the Individual Alternative Minimum Tax 

(Millions of returns) (Billions of dollars)

Source: Congressional Budget Office.

Note: Projections are based on CBO’s baseline projections issued in August 2009. Some taxpayers without liability under the alternative minimum tax (AMT) are still affected by it because, for example, it limits their credits taken under the regular income tax.

a. Based on calendar year.

b. Based on fiscal year.

amounts and rate brackets used to calculate the AMT are 

not indexed. If income grows at the rate of inflation, 

regular tax liability also rises with inflation; AMT liability 

grows faster, however, because income is rising but the 

AMT’s exemption amounts and rate brackets are not. 

Therefore, as prices rise over time, more and more taxpayers owe the alternative tax. The temporary increases in 

the AMT’s exemption amounts enacted since 2001 have 

effectively indexed the AMT for inflation. The most 

recent adjustment expired at the end of 2009, however. 

As a result, the exemption amounts have reverted to the 

amounts in effect before 2001 and, because of the cumulative effect of inflation over the intervening years, the 

number of people affected by the AMT will increase 

dramatically.

The effects of inflation on the AMT build up over time. 

Even though recent declines in inflation have contributed 

to slower projected growth in receipts from the AMT, 

the Congressional Budget Office (CBO) has estimated 

that if current laws remained in effect, the AMT would 

affect more than 30 percent of taxpayers in 2030 and 

60 percent by 2050. Additional receipts attributable to 

the AMT would account for 8 percent of individual 

income taxes collected by the government in 2030 and 

14 percent by 2050.4

Legislation

Because taxpayers must pay the higher of their liability as 

computed under the regular and alternative tax systems, 

changes made to the regular income tax without corresponding adjustments to the AMT often affect the number of taxpayers liable for the alternative tax. A decrease in 

regular income taxes for taxpayers who are close to, but 

not yet at, the point at which they pay the AMT will 

push some of them onto the alternative tax if their 

reduced regular tax liability no longer exceeds their AMT 

liability. Those taxpayers would experience a reduction in 

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

0

5

10

15

20

25

30

35

40

0

20

40

60

80

100

120

Tax Returns Affected by the AMT (Left scale)a

AMT Receipts (Right scale)b

4. Congressional Budget Office, The Long-Term Budget Outlook 

(June 2009). The increase in the share of taxpayers and revenues 

attributed to the AMT would not persist indefinitely under current law, however. Rising real (inflation-adjusted) income would 

eventually cause more of taxpayers’ income to be taxed at higher 

rates under the regular tax, including rates above the top 28 percent AMT rate. That process would eventually slow the expansion 

of the AMT under current law. By 2065, in CBO’s estimation, the 

share of individual income tax revenues generated by the AMT 

would level off and begin to decline.
ECONOMIC AND BUDGET ISSUE BRIEF

THE INDIVIDUAL ALTERNATIVE MINIMUM TAX 5

taxes that would be less than they might have expected 

had they remained under the regular tax. Conversely, an 

increase in regular taxes may reduce the number of taxpayers subject to the AMT, but it would not affect the 

total tax liability of those who remain under the AMT.5

Recent cuts in regular income taxes have contributed to 

the potential impact of the AMT. Major tax legislation 

enacted beginning in 2001, most notably the Economic 

Growth and Tax Relief Reconciliation Act of 2001 

(EGTRRA), the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the Working Families Tax Relief 

Act of 2004, significantly reduced regular income tax liability through calendar year 2010 without providing 

commensurate reductions in AMT liability.6

 To keep the 

number of taxpayers who pay the AMT from expanding 

rapidly, lawmakers temporarily modified the AMT several times since 2001, primarily by raising the AMT’s 

exemption amounts. Those temporary adjustments to the 

AMT expired at the end of calendar year 2009, whereas 

most of the regular income tax reductions are scheduled 

to expire at the end of 2010. As a result, CBO projects, 

the number of taxpayers subject to the AMT will rise by 

23 million in 2010, then fall by 11 million the following 

year (when the regular income tax reductions expire). 

Revenues from the AMT will follow a similar pattern, 

rising by $63 billion in fiscal year 2011 and falling by 

$58 billion in 2012. CBO expects nearly all of the additional AMT liability from 2010 will be paid in fiscal year 

2011 because taxpayers are unlikely to increase their estimated payments or withholding in anticipation of the 

scheduled change in law. Many taxpayers are unaware of 

the change or expect lawmakers to continue raising the 

AMT’s exemption amounts on a temporary basis (as they 

have done for the past several years). Even those taxpayers 

who anticipate and plan for the expiration of the AMT 

patch may use the safe-harbor provisions in the tax code 

to delay their payments until 2011 without penalty.7

Although most of the tax reductions enacted since 2001 

are scheduled to expire at the end of 2010, lawmakers 

may choose to extend some or all of those provisions. If 

lawmakers chose to extend the lower tax rates and other 

expiring provisions of current tax law, the AMT’s reach 

would grow even faster. If tax law as currently scheduled 

for 2010 was made permanent, the AMT would affect 

about 45 million, or one in four, taxpayers by 2019 (compared with 35 million under current law). In its fiscal year 

2010 budget, the Administration proposed extending 

many of those expiring tax provisions but also permanently restructuring the AMT to limit the number of taxpayers it affects.

Changes in the Types of Taxpayers 

Affected by the AMT

As the AMT expands, it will reach taxpayers with different characteristics than those affected by the AMT in the 

past. Many of the taxpayers previously subject to the 

alternative tax were the relatively small number of higherincome filers who tended to itemize their deductions and 

used tax preferences that are available to itemizers but disallowed under the alternative tax. In the years to come, 

however, many taxpayers with lower income will move 

onto the AMT because it disallows some widely used features of the regular tax, such as the personal exemption 

(which all taxpayers use) and the standard deduction 

(which roughly two-thirds of filers use). In 2001, only 

about 6 percent of the 1 million taxpayers affected by the 

AMT claimed the standard deduction on their regular tax 

return. That share is projected to rise to nearly one-third 

of the projected 27 million taxpayers who will owe the 

AMT in 2010. The AMT tends to affect larger families 

and taxpayers with greater deductions for state and local 

taxes more than it affects other taxpayers. 

As the impact of the AMT expands, it will increasingly 

affect taxpayers in lower income groups than has historically been the case. In 2009, taxpayers with adjusted gross 

5. Thus, because of the AMT, increases in regular income taxes tend 

to yield less additional revenue, and tax cuts tend to reduce revenues less (and provide less relief to taxpayers), than they would 

without the AMT.

6. In the past, increases in regular income tax rates were often 

accompanied by increases in the AMT rate (for example, in 

the Omnibus Budget Reconciliation Acts of 1990 and 1993— 

Public Law 101-508, 104 Stat. 1388-406; and Public Law 

103-66, 107 Stat. 461).

7. To avoid penalties, taxpayers must generally remit 90 percent of 

their tax liability for a given tax year either through withholding 

or through estimated payments before filing their tax returns in 

the following spring. However, taxpayers may estimate their 

required payments based on 100 percent (110 percent for highincome taxpayers) of their liability from the previous tax year.
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 2.

Composition of Taxpayers Affected by the Alternative Minimum Tax in 

2009 and 2010, by Adjusted Gross Income 

(2009 dollars)

Source: Congressional Budget Office.

Note: The total number of taxpayers affected by the alternative minimum tax in 2009 is estimated to be 4.5 million; in 2010, under current 

law, it is projected to reach 27.2 million.

income (AGI) of less than $200,000 (in 2009 dollars) 

accounted for less than 30 percent of all AMT filers; in 

2010, they will account for more than 84 percent (see 

Figure 2).8

 The biggest change will be for taxpayers with 

income between $100,000 and $200,000. The share of 

those taxpayers with AMT liability will rise from 

17 percent in 2009 to 85 percent in 2010, and those 

affected will pay an estimated additional $2,900 in tax, 

on average. 

Taxpayers with AGI between $200,000 and $500,000 

will continue to be hit the hardest by the AMT. More 

than 77 percent of those taxpayers had AMT liability in 

2009, and that share will grow to 98 percent in 2010. 

Those affected can expect to pay an additional $10,700 

in tax, on average. 

Much of the income of taxpayers with income in the 

$100,000 to $500,000 range is taxed at rates of 25 percent and lower under the regular tax, compared with rates 

of 26 percent and 28 percent under the AMT. As inflation erodes the value of the AMT’s exemption, more of 

their income will be subject to the alternative tax. In 

addition, the AMT’s exemption phases out starting at 

$150,000 of alternative minimum tax income (AMTI) 

for married couples filing jointly, raising their effective 

marginal AMT rates by one-fourth (to 32.5 percent and 

35 percent) until AMTI exceeds $433,800.9

 The AMT 

has less effect on the highest-income taxpayers (because 

Less than 

50,000

 (0%)

50,000 to 

100,000

 (5%)

100,000 to 

200,000

 (23%)

200,000 to 

500,000

 (62%)

More than 

500,000

 (10%)

Less than 

50,000

 (3%)

50,000 to 

100,000

 (35%)

100,000 to 

200,000

 (47%)

200,000 to 

500,000

 (14%)

More than 

500,000

 (2%)

2009 2010

8. Adjusted gross income is used to determine income tax liability. It 

is total income from taxable sources minus certain exempted 

amounts, such as contributions to deductible individual retirement accounts and interest on student loans.

9. AMTI equals AGI plus AMT preferences (which are actually regular tax preferences disallowed under the AMT) and adjustments. 

Because capital gains are included in AMTI, the effective marginal 

rates on income from capital gains for taxpayers in the phaseout 

range also increase to 21.5 percent and 22 percent. The phaseout 

of the exemption occurs for single taxpayers with AMTI between 

$112,500 and $286,500 and for married couples filing separately 

with AMTI between $75,000 and $191,000, raising their effective tax rates in those income ranges. 
ECONOMIC AND BUDGET ISSUE BRIEF

THE INDIVIDUAL ALTERNATIVE MINIMUM TAX 7

the top rate of 35 percent under the regular tax is higher 

than the top statutory rate under the AMT) and the 

lowest-income taxpayers (because the AMT’s exemption 

shields most of them from the alternative tax). 

Because married couples are more likely to have AMT 

liability than unmarried taxpayers with similar income, 

as the AMT begins to reach taxpayers in lower income 

groups it will disproportionately affect couples. CBO 

estimates that married couples filing a joint tax return 

with AGI between $100,000 and $200,000 will be 

20 times more likely to owe the AMT in 2010 than in 

2009 (paying an additional $2,900 in tax, on average), 

compared with other filers in the same income category, 

who are about 3 times more likely to owe the AMT in 

2010 than in 2009. Married couples face the same AMT 

tax brackets as other taxpayers, and their AMT exemption after 2009 is only one-third larger than that of their 

unmarried counterparts. (In contrast, the regular tax 

brackets and standard deduction for married couples are 

at least two-thirds larger than those for single taxpayers, 

in most cases.) Furthermore, the loss of personal exemptions under the AMT hits larger households harder 

because, under the regular tax, families can generally 

claim a personal exemption for both spouses as well as for 

each dependent. 

As the reach of the AMT expands, it will also affect taxpayers who live in places with high state and local taxes 

more than their otherwise similar counterparts living in 

low-tax areas, because the alternative tax disallows a 

deduction for those taxes. The value of that deduction 

varies widely by jurisdiction because of large differences 

in tax rates. For example, the average state and local tax 

deduction claimed by taxpayers with AGI between 

$100,000 and $200,000 in 2007 in New York (a high-tax 

state) was $14,400, while the average deduction claimed 

by taxpayers in the same income group in Florida (a state 

with no income tax) was just $6,800.10

Effects of the AMT on Tax 

Incentives and Complexity

In addition to raising tax liabilities for affected taxpayers, 

the AMT replaces some incentives embedded in the regular tax system and changes marginal tax rates. As a result, 

the AMT can alter the distribution of taxes across different households and affect people’s behavior. The AMT 

also increases the complexity of the calculations required 

for many taxpayers, in turn reducing the transparency of 

the tax system and complicating tax planning decisions.

The AMT Modifies or Limits Regular 

Income Tax Incentives

The regular income tax system provides for a variety of 

specific tax deductions, exclusions, and credits—for state 

and local taxes paid, larger families, medical expenses, 

and housing expenses, for example—intended to encourage certain behavior or to provide relief to taxpayers in 

certain situations. In cases where the AMT’s treatment 

differs from that under the regular income tax, those preferences may be reduced or eliminated. Whether the regular or alternative tax treatments are preferable depends on 

the goals and priorities of policymakers. 

Deduction for State and Local Taxes. The regular income 

tax allows a deduction for state and local taxes paid on 

income and property.11 The deduction provides a considerable subsidy to residents in those jurisdictions because 

it decreases the net cost to taxpayers of paying deductible 

state and local taxes. By lowering the net cost of those 

taxes, the deduction allows state and local governments to 

impose higher taxes and provide more services than they 

otherwise could. 

The deduction is disallowed under the AMT, so the 

AMT is more likely to affect taxpayers in higher-tax 

states, for whom the deduction is more valuable. In 2007, 

for example, 18 percent of taxpayers in New York (a hightax state) with AGI between $100,000 and $200,000 

paid the AMT, while fewer than 5 percent of taxpayers in 

the same income group in Florida (a state with no income 

tax) paid the alternative tax. By curtailing the use of the 

deduction, the AMT limits the implicit subsidy to state 

and local governments. The AMT also treats otherwise 

similar taxpayers in different locations more comparably 

because it does not distinguish among taxpayers on the 

basis of the amount and type of state and local financing 

where they live (in contrast to the regular tax, which 

does).12

10. See Congressional Budget Office. The Deductibility of State and 

Local Taxes (February 2008).

11. Since 2004, taxpayers have also been allowed to deduct state and 

local sales taxes in lieu of state and local income taxes. However, 

that provision expired on December 31, 2009.

12. See Congressional Budget Office, The Deductibility of State and 

Local Taxes.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Exemptions for Dependents. The regular tax system 

offers benefits to larger families, allowing taxpayers to 

take child tax credits and personal exemptions for themselves and each of their qualifying dependents. Even 

though the AMT allows child tax credits, it replaces the 

personal exemptions with a single exemption amount 

based only on filing status, thereby reducing the tax benefit provided for larger families relative to smaller ones. For 

example, in 2006, married couples with three dependents 

and income between $100,000 and $200,000 were three 

times as likely to have AMT liability as couples with similar income and no dependents. 

Other Tax Preferences. The AMT limits other regular 

income tax preferences, including deductions for medical 

expenses and for certain mortgage interest. The regular 

income tax allows taxpayers to deduct medical expenses 

in excess of 7.5 percent of AGI if they itemize their 

deductions, but the AMT limits the deduction to 

expenses exceeding 10 percent of AGI. As a result, the 

AMT reduces the amount of relief given to taxpayers 

with large medical expenses in a given year (although that 

limitation applies only to taxpayers subject to the AMT, 

who generally have higher income and may be in less 

need of relief). Similarly, although taxpayers may deduct 

mortgage interest paid to acquire, build, or improve a primary residence under both the regular and the alternative 

taxes, the AMT disallows the deduction for mortgage 

interest paid on secondary residences and interest paid on 

certain other mortgage debt. 

The AMT Alters Marginal Tax Rates

The different incentives provided by the alternative tax 

may affect taxpayers’ behavior when they are aware of 

how the AMT applies to them. The AMT can subject 

taxpayers to higher marginal tax rates—which, in turn, 

influence decisions about how much to work and save, 

potentially reducing economic efficiency. Although some 

taxpayers face lower marginal tax rates under the AMT, 

most face rates that are higher than those imposed under 

the regular income tax. 

As an example, consider the case of a married couple with 

three children. If, in 2009, the couple had wage income 

of $220,000, capital gains of $10,000, and deductions 

of $10,000 for mortgage interest and $16,000 for state 

and local taxes, they would have liability of $38,974 

under the regular income tax and additional liability of 

$3,230 under the AMT. The couple would face effective 

marginal AMT rates of 32.5 percent on wages and 

21.5 percent on capital gains, well above the 28 percent 

and 15 percent marginal rates they would incur under the 

regular income tax. 

In 2006, more than 70 percent of taxpayers subject to the 

AMT faced a higher marginal tax rate than they would 

have under the regular tax. On average, the AMT raised 

the marginal tax rates for those taxpayers by about 4 percentage points. The higher marginal tax rates reduce 

after-tax wages, which might discourage work. But the 

additional tax also means that taxpayers have to work 

more to achieve the same after-tax income. On balance, it 

is not clear how the AMT influences incentives to work 

and save; the overall effect would depend on taxpayers’ 

responsiveness to those incentives and others. 

The AMT Increases Complexity and Reduces 

Transparency

The growing impact of the AMT will require more taxpayers to complete AMT forms in addition to their regular income tax returns. (Some taxpayers without any 

AMT liability must complete a worksheet to determine 

that the tax does not apply to them.) Although the basic 

AMT calculation appears to be simple, it is actually complex in various ways. (For details on the calculation of the 

AMT, see Box 1.) For example, it can complicate one of 

the most basic filing decisions—whether or not to itemize deductions. Under the regular income tax, the choice 

is easy: Sum up all deductions that may be itemized, 

adjust for the phaseout (if applicable), compare the result 

with the appropriate standard deduction, and claim the 

larger of the two amounts.13

In calculating AMT liability, however, taxpayers who 

would not have itemized under the regular tax need to 

calculate their itemized deductions if they wish to minimize their taxes, and those taxpayers who did itemize 

under the regular tax must recalculate their itemized 

deductions under different rules. The existence of the 

AMT increases the number of potential liabilities the taxpayer must calculate to determine whether he or she is

13. In 2009, taxpayers with AGI above $166,800 must reduce many 

of their itemized deductions by 1 percent of AGI in excess of that 

threshold amount, up to a maximum of 80 percent. 
ECONOMIC AND BUDGET ISSUE BRIEF

THE INDIVIDUAL ALTERNATIVE MINIMUM TAX 9

Table 1.

Selected Options for Changing the 

Alternative Minimum Tax

(Billions of dollars)

Source: Joint Committee on Taxation.

Note: AMT = alternative minimum tax.

liable for that tax and how to pay the lowest amount in 

taxes.14

The availability of computer software to prepare taxes 

lessens much of the burden of preparation imposed by 

the AMT. Programs available on the Internet or for 

installation on personal computers automatically determine whether taxpayers have AMT liability and generate 

the required forms. Approximately two-thirds of taxpayers filed electronic returns with the Internal Revenue 

Service in 2009, and many more filed paper returns prepared using computer software. Using software or a paid 

preparer may make tax filing faster and easier, but those 

methods can impose additional out-of-pocket costs and 

may reduce the transparency of the tax system. 

If taxpayers rely on computer software and do not understand how their tax liability is calculated, they may be 

less responsive to the intended incentives in the tax code. 

In addition, taxpayers’ potential liability for the AMT 

may complicate their tax planning decisions. For example, taxpayers must often predict whether they will be 

liable for the AMT when deciding when to earn income, 

when to pay for potentially deductible activities, and 

whether to make additional estimated tax payments 

throughout the year.15

Options for Changing the AMT

For most of the past decade, lawmakers have chosen to 

limit the number of taxpayers affected by the AMT by 

temporarily increasing the exemption amounts. Those 

amounts were initially increased by EGTRRA in 2001 

and subsequently increased and extended for a year or 

two at a time, most recently by the American Recovery 

and Reinvestment Act of 2009 (ARRA). The 2009 AMT 

exemptions of $70,950 for married couples and $46,700 

for unmarried filers revert in 2010 to the pre-2001 levels 

of $45,000 and $33,750, respectively. Policymakers could 

permanently limit the expansion of the AMT’s impact 

in a number of ways. This brief examines three options 

that illustrate the range of choices policymakers face: 

indexing the AMT’s parameters for inflation; allowing 

additional exemptions and deductions under the AMT; 

and eliminating the AMT.16 (CBO does not make policy 

recommendations.) 

Those options would involve revenue losses of several 

hundred billion dollars over the next 10 years relative to 

receipts projected under current law (see Table 1) and 

would affect varying numbers and types of taxpayers. The 

revenue estimates assume that the regular income tax 

reductions currently scheduled to expire at the end of 

2010 do so. If they were extended before changes in the 

AMT were enacted, the revenue lost from restructuring 

the AMT would be considerably higher (roughly doubling under some options). 

If policymakers wished to offset the deficit-increasing 

effect of limiting or eliminating the AMT, that goal could 

be accomplished by broadening the base for the regular 

income tax or raising its rates, by increasing revenues 

from other tax sources, or by reducing spending. Because 

14. An additional complication caused by the AMT involves the 

question of when to incur deductible expenses. Because some 

deductions are denied under the AMT, taxpayers who know they 

will be subject to the AMT in a given year may be able to reduce 

their taxes in the following year by delaying deductible expenses 

into that next year. Alternatively, they may owe less tax if they 

advance deductible expenses into an earlier year. Either situation 

requires additional calculations on the taxpayer’s part.

Restructuring Option

Make the Current Exemption Amounts

Permanent and Index the

AMT for Inflation -447

Apply Some Regular Deductions and

Exemptions to the AMT -532

Eliminate the AMT -626

Change in Revenues, 

2010 to 2019

15. Software also does not eliminate all AMT complications. For 

example, the amount of state and local tax refunds that are 

included in current income depends on the extent to which the 

AMT limited the state and local tax deduction in the prior year. 

That amount may need to be calculated manually and requires 

recalculating prior-year income tax liability. 

16. For further details on options regarding the AMT, including 

budget estimates prepared by the staff of the Joint Committee 

on Taxation, see Congressional Budget Office, Budget Options, 

Volume 2 (August 2009), pp. 184–185.
10 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

under current law the AMT will account for approximately 4 percent of total individual income tax revenues 

by 2019, regular income taxes would have to rise by a 

similar magnitude to offset a full repeal, and somewhat 

less to offset more modest changes. All or some of the regular income tax rates, including tax rates on capital gains 

and dividend income, could be raised. Changes to the 

AMT could also be coupled with the elimination of various tax preferences that apply to the regular income tax. 

For example, if restructuring the AMT was combined 

with elimination of the deduction for state and local 

taxes, revenue neutrality could be maintained and regular 

income tax rates could actually be lowered. Some budgetneutral options would be less economically efficient and 

would alter the distribution of the tax burden as compared with keeping the AMT in place as scheduled under 

current law.17

Index the AMT’s Parameters for Inflation

The AMT’s reach will expand primarily because indexation under current law prevents regular tax liabilities—

but not liabilities under the AMT—from growing as a 

result of income keeping pace with price inflation. As 

nominal income rises over time, more taxpayers become 

liable for the AMT. If the exemption amounts in effect 

for 2009 were made permanent and indexed for inflation 

after 2009, along with the AMT’s brackets and the 

threshold at which the exemption phased out, 5 million 

taxpayers would pay the AMT in 2010—rather than the 

27 million projected to pay under current law—and revenues would be about $450 billion lower from 2010 to 

2019 than they would be otherwise. To the extent that 

lawmakers continue indefinitely their recent practice of 

temporarily raising the AMT’s exemption amounts, that 

approach is similar to permanently indexing the AMT’s 

parameters for inflation. However, one- or two-year 

adjustments to the exemption amounts create uncertainty 

for taxpayers, who are likely to make financial decisions 

with potential AMT tax consequences before legislators 

take action in any given calendar year. 

Allow Additional Regular Tax Preferences 

Under the AMT

By disallowing exemptions for dependents and the 

deduction for certain state and local taxes, the AMT 

affects large families and people in high-tax jurisdictions, 

respectively. To provide some relief to taxpayers, lawmakers could allow them to use the standard deduction, 

personal exemptions, and deductions for state and local 

taxes (as they are used under the regular tax) when computing their tax liability under the AMT. The standard 

deduction and personal exemptions are both indexed for 

inflation, and state and local taxes also generally rise with 

prices. That approach would offset the erosion of the 

unindexed AMT exemptions caused by inflation and 

would provide relief similar to that offered by the previous option (indexing the AMT’s parameters for inflation) 

for many taxpayers. This option would decrease the number of people affected by the AMT to 2 million in 2010 

and lower revenues by about $530 billion over the 

2010–2019 period. 

Repeal the AMT

The most comprehensive approach would be to simply 

eliminate the individual AMT altogether, as proposed in 

the 2005 report of the President’s Advisory Panel on Federal Tax Reform. The 27 million taxpayers who would be 

subject to the AMT in 2010 would revert to paying the 

regular individual income tax. At a revenue cost of more 

than $620 billion over 10 years, this option would free 

taxpayers from having to make a second set of tax calculations and would reduce tax liability for nearly everyone 

now subject to the AMT.18 Eliminating the AMT altogether would repeal some provisions intended to prevent 

investment activities that are designed to avoid the regular income tax. Those provisions could be incorporated 

into the regular income tax as part of a repeal.

18. For some taxpayers, however, future liabilities would rise. Under 

current law, people who pay the AMT because of timing issues—

the treatment of incentive stock options, for example—may 

recoup those payments to the extent that their AMT is negative in 

future years. Unless special provisions were made, repealing the 

AMT might preclude such taxpayers from recovering previous 

AMT payments.

17. For further discussion of options to restructure the AMT, 

see Leonard E. Burman and others, Options to Fix the AMT

(Washington, D.C.: Urban-Brookings Tax Policy Center, 

January 19, 2007). 

This brief was prepared by Joshua Shakin of CBO’s Tax 

Analysis Division. It and other CBO publications are 

available at the agency’s Web site (www.cbo.gov).

Douglas W. Elmendorf 

Director