When we got a glimpse of Donald J. Trump's federal 2005 tax year filing back in 2017, one thing was very clear. Trump's personal tax situation is why during his initial presidential campaign he called for the elimination of the federal Alternative Minimum Tax (AMT).
The New York Times' recent exposé of more than two decades of Trump tax information, underscores his adversarial relationship with this parallel tax system.
In the few years that Trump did pay federal income tax, The Times' story noted that it was due primarily to the AMT. Specifically:
"Mr. Trump paid alternative minimum tax in seven years between 2000 and 2017 – a total of $24.3 million, excluding refunds he received after filing. For 2015, he paid $641,931, his first payment of any federal income tax since 2010."
About the AMT: This alternative tax was created in 1969 after it was revealed that a few rich taxpayers — and we're talking a really few, specifically only 155 people who back then made more than $200,000 — avoided paying any tax.
The AMT was designed to ensure that those (and future) wealthy taxpayers paid at least some tax at either 26 percent or 28 percent. Basically, you compute your regular tax amount on your Form 1040, then do it all again to determine if you must pay the AMT.
This double computation basically includes adding back some itemized deductions that reduced your ordinary tax liability.
The extra tax filing work, along with the fact that the AMT didn't originally factor in inflation each year, soon made it one of the most hated taxes among the middle class.
Yep, the middle-class, not just the rich. These not-necessarily wealthy taxpayers were, due to the inflation oversight, getting increasingly caught up in the AMT net.
Congress eventually took care of the inflation issue, mandating in 2013 that the regular income levels that could trigger the AMT now get a bit of a bump each year if living costs so demand. The Internal Revenue Service's inflation-adjusted earnings levels in 2020 that you must hit before you start to worry about the AMT are:
- $72,900 for single and head of household taxpayers,
- $113,400 for married couples filing joint returns or surviving spouses, and
- $56,700 for married couples filing separately.
The Tax Cuts and Jobs Act of 2017 eased the AMT threat on middle- and upper-middle-income earners even more. The Republican tax reform law established a larger income exemption amount and increased the threshold at which that exemption phases out.
But Uncle Sam's AMT is still around.
And so are some state minimum tax laws.
Five states also have individual & corporate AMTs: The Tax Foundation, a Washington, D.C.-based nonprofit tax policy think tank, created the map below showing the few states that have a state individual AMT.
In case you're reading this on a smaller mobile device and can't quite make out the state boundaries, they are California, Colorado, Connecticut, Iowa and Minnesota.
Five states also have corporate AMTs. California, Iowa and Minnesota apply minimum taxes to business taxpayers as well as individuals. Kentucky and New Hampshire collect minimum tax amounts only from business filers.
Like Trump and state and federal taxpayers across the country, the Tax Foundation, which advocates lower, more broadly based taxes, is not a fan of minimum tax laws.
"The original goal of AMTs — to prevent deductions from eliminating income tax liability altogether — can be accomplished best by simplifying the existing tax structure, not by instating an alternative tax which adds complexity and lacks transparency and neutrality," writes Janelle Cammenga, Tax Foundation policy analyst, in the organization's blog post accompanying the map.
You also might find these items of interest:
- Trump vs. Biden on taxes, a 2020 election preview
- Tax law changes in 2020 at federal and state levels
- How ordinary & necessary expenses become tax deductions