Over time, the individual income tax has been used as a vehicle to promote various social and economic goals. This has been accomplished by according preferential tax treatment to certain items of income and expense. The net result, however, has been an erosion of the individual income tax base. By taking advantage of the preferences and incentives in the tax code, some individuals can substantially reduce their income taxes. To make sure that everyone paid at least a minimum of taxes and still preserve the economic and social incentives in the tax code, Congress, in 1969, enacted the predecessor to the current individual alternative minimum tax (AMT). Since its inception, the value and effectiveness of the minimum tax has often been the subject of congressional debate. Recently, the combined effects of inflation and legislative reductions in the regular income tax enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), and the Working Families Tax Relief Act of 2004 (WFTRA) and their pending expiration increased congressional concern about the alternative minimum tax. 112-240 ) permanently indexed the parameters of the AMT for inflation beginning with the 2012 tax year. The so-called "permanent patch" of the AMT was estimated to reduce federal revenue by $1.816 trillion over the 2013 to 2022 budget window. The report will be updated as legislative action warrants. The American Taxpayer Relief Act of 2012 (ATRA, P.L. Calculating AMT Liability

The alternative minimum tax for individuals is calculated in the following manner. First, an individual adds back various tax preference items to his taxable income under his regular income tax. Next, the amount of the basic exemption is calculated and subtracted from the AMT tax base. A two-tiered tax rate structure of 26% and 28% is then assessed against the remaining AMT tax base to determine AMT tax liability. The taxpayer then pays whichever is greater, his regular income tax liability or his AMT tax liability. Finally, the AMT tax credit is calculated as an item to be carried forward to offset regular income tax liabilities in future years.
Over time, the individual income tax has been used as a vehicle to promote various social and economic goals. This has been accomplished by according preferential tax treatment to certain items of income and expense. The net result, however, has been that by taking advantage of the preferences and incentives in the tax code, some individuals can substantially reduce their income taxes.
Congress, in 1969, enacted the predecessor to the current individual alternative minimum tax (AMT) to make sure that everyone paid at least a minimum of taxes and still preserve the economic and social incentives in the tax code. The AMT is calculated in the following manner. First, an individual adds back various tax preference items to his taxable income under his regular income tax. This amount then becomes the AMT tax base. Next, the basic exemption is calculated and subtracted from the AMT tax base. A two-tiered tax rate structure of 26% and 28% is then assessed against the remaining AMT tax base to determine liability. The taxpayer then pays whichever is greater, the regular income tax or the AMT. Finally, the AMT tax credit is calculated as an item to be carried forward to offset regular income tax liabilities in future years.
Since its inception, the value and effectiveness of the AMT has often been the subject of congressional debate. In 2012, the combined effects of inflation and the anticipated expiration of the 2001 and 2003 regular income tax cuts increased congressional concern about the alternative minimum tax. Many policymakers endorsed plans to either permanently patch the AMT as an adjustment for inflation or to repeal the tax outright. In early 2013, however, the American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240) indexed the parameters of the AMT for inflation beginning retroactively with the 2012 tax year. The so-called permanent patch of the AMT is estimated to reduce federal revenue by $1.816 trillion over the 2013 to 2022 budget window.
This report will be updated as legislative action warrants.