January 10, 2007
Report shows New Yorkers more likely to be subject to AMT
New York taxpayers are more likely to be subject to the federal alternative minimum tax in part because of high state and taxes, according to a new analysis by the Washington, D.C.-based Tax Foundation.
“The AMT was originally designed as a backstop for the federal income tax, and affected only a small number of wealthy taxpayers,” the analysis said. “But its reach has grown in recent years, and it has begun drawing in middle- and upper-middle income taxpayers as well.”
The AMT, which requires taxpayers to calculate their taxes by two different methods, and then pay the higher of the two amounts, was intended to ensure wealthy taxpayers did not avoid paying taxes by taking excess deductions. However, the AMT was established in 1969 and the rules governing the tax were not adjusted to inflation, leaving more and more taxpayers subject to the higher tax.
The analysis said that in 2000, 1.3 million taxpayers were subject to the AMT. But this year, that number is expected to go up to 19 million, many of whom are in New York.
“The regular income tax allows taxpayers to deduct state and local taxes paid from their income when calculating federal tax bills,” the Tax Foundation said. “The AMT does not allow this deduction. As a result, state and local taxes lower taxpayers' regular income tax bills but not their AMT tax bills. And since taxpayers pay the higher of the two amounts, taxpayers living in congressional districts with high state and local taxes will be harder hit by the AMT.”
“Congressional districts in New York, New Jersey and California dominate the list of areas most affected by the AMT,” the Tax Foundation's analysis said. New York's 18th congressional district in Westchester “tops the list with 13.5 percent of all tax returns subject to the AMT.”
The second congressional district most affected by the AMT is also in New York, the report found. In New York's 14th Congressional district, representing parts of Queens and Manhattan, 12.36 percent of all tax returns are subject to the AMT, representing an additional tax burden of more than $10,000 per return.
“Overall, nine New York congressional districts appear in the top 20, while California and New Jersey each have four, and Connecticut, Illinois and Maryland each have one.
The Tax Foundation's report is available at www.taxfoundation.org/publications/show/2131.html.