Does your state have an Individual Alternative Minimum Tax (AMT)?


This week’s map shows the five states that have an alternative minimum tax (AMT) in their income tax codes: California, Colorado, Connecticut, Iowa, and Minnesota. Under an individual alternative minimum tax, many taxpayers are required to calculate their income tax under two systems and pay the higher amount.

The federal AMT was created in 1963, after Congress discovered that 155 high-income taxpayers were eligible to claim so many deductions that they were left without any federal income tax liability. The federal AMT rejects the standard deduction and adds certain itemized deductions, including the National and Local Tax Deduction (SALT), thereby recovering income from taxpayers who would otherwise be eligible for these tax expenditures.

While the federal AMT was originally intended to be a narrow solution to a limited problem, it has not been indexed for inflation. As a result, it didn’t take long for many middle-income taxpayers to find themselves forced to calculate and pay an LMO. Several states have followed suit by setting up their own AMTs. This meant that some taxpayers had to calculate their tax liability four times: twice under the federal code and twice under their state code. Frequently, moreover, AMTs increase tax liability more for the upper middle class than for the highest earners.

The Jobs and Tax Cuts Act increased federal AMT exemption amounts and phase-out thresholds through 2025, meaning fewer taxpayers will be required to calculate and pay the federal AMT in the years to come. In states that either comply with the federal provision or use it as the basis for their own calculation, fewer filers will be subject to the AMT at this time. (As states use old thresholds, filers will need to go through the process of calculating a state LMO even if they are no longer subject to a federal LMO.) Unless Congress decides to extending it, higher exemption amounts will expire after 2025, a change that will also impact state tax codes.

Iowa repealed its business AMT on Jan. 1, through a comprehensive tax reform package passed in May 2018. While the state’s individual AMT is still in place, its repeal is slated for early 2023. .

The original goal of alternative minimum taxes – to prevent deductions from eliminating income tax altogether – can best be achieved by simplifying the existing tax structure, and not by creating an alternative tax that adds complexity and lacks consistency. transparency and neutrality.

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