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Alternative Minimum Tax

Table of Contents

Background

In addition to the 4.63 percent income tax, some Colorado taxpayers with higher taxable incomes are also required to pay a state alternative minimum tax (AMT).1  Individuals, estates, and trusts are subject to the AMT, while corporations are exempt.  The AMT is payable only to the extent that it exceeds the regular state income tax.  For example, if a taxpayer’s AMT is calculated as $5,000 and their income tax liability is $4,000, they would owe $1,000 in AMT, as well as $4,000 in regular income tax.  Taxpayers that owe the Colorado AMT are required to submit the AMT Computation Schedule (104 AMT) with their Colorado Individual Income Tax Return (Form 104) by April 15th each year. If a taxpayer pays estimated tax, this tax must take into account the AMT liabilities that will be incurred in the next year or have been incurred in the prior year.

The Colorado AMT was enacted in 1987 and between tax years 1987 and 2000, was assessed at a rate of 3.75 percent.  Beginning in tax year 2001, the rate was reduced to 3.47 percent. Revenue from the AMT is subject to the revenue and spending limitations of the TABOR Amendment.

Tax Rate

As illustrated in the figure below, the AMT is imposed on federal alternative minimum taxable income at a rate of 3.47 percent, after accounting for allowable Colorado tax modifications (including additions, subtractions, exemptions and deductions).

AMTTaxRateChart.jpg

Additions:
  • any additions to income required to be made for regular income tax purposes; and
  • local bond interest not already included in federal alternative minimum taxable income.
Subtractions:
  • federal alternative minimum tax exemption;
  • any subtractions from income allowed for normal income tax purposes, except any amount already subtracted in arriving at federal alternative minimum taxable income; and
  • any Colorado or local bond interest included in federal alternative minimum taxable income.
Tax Credits

See the Colorado corporate and individual income tax sections for information on income tax credits. Additionally, qualifying taxpayers may claim a one-year carry-over of the federal minimum tax credit equal to 12 percent of the prior tax year’s federal minimum tax credit claimed on the current year’s federal income tax return (total of lines 25 and 27 on Form 8801).  The credit is limited to the net tax liability due for both the Colorado regular income tax and the AMT.  Any excess credit cannot be carried forward to another tax year.2

Distribution

Like the individual income tax, one-third of one percent of Colorado taxable income is credited to the State Education Fund.  The remaining revenue is credited to the General Fund.3 

Federal Taxes

Generally, taxpayers with incomes less than $100,000 are not subject to the federal AMT.  However, taxpayers must complete Form 6251 (for individuals) to know for sure.  See Form 6251 instructions for more information on completing the form.  If a taxpayer’s federal AMT is greater than the amount owed on the federal income tax return, the taxpayer is required to pay the AMT.  The federal AMT is calculated as follows:

AMTSecFedTaxesChart.jpg

The federal AMT is based upon a different taxable income schedule than the regular income tax, where certain income is added back and other income is excluded to calculate the federal alternative minimum taxable income (AMTI).  The federal AMT has two marginal tax rates that apply to the AMTI, summarized for tax year 2014 below with the federal AMT exemption.  After subtracting an the AMT exemption amount, if the AMT tax liability is greater than the regular federal income tax, the regular return amount is required to be paid to the IRS plus the difference between the regular return and the AMT.  Under the American Tax Relief Act (ATRA) of 2012, the AMT exemption and associated AMTI thresholds are grown by the rate of inflation each year.4

2016 Tax Year Federal AMT Rates and Exemptions
Filing Status & AMTI
Tax Rate  
Filing Status
AMT Exemption
Married, Filing Separately
    Up to $93,150
    Over $93,150
Any Other Status
    Up to $186,300
    Over $186,300
 
26%
28%
 
26%
28%
Single
Head of Household
Married, Filing Separately
Married, Filing Jointly
Qualifying Widow(er)
$53,900
$53,900
$41,900
$83,800
$83,800
State Comparisons

In tax year 2015, six states levied a state AMT, including Colorado, California, Connecticut, Iowa, Minnesota, and Wisconsin.  Nebraska and New York eliminated their AMTs beginning in tax year 2014.

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1Section 39-22-105, C.R.S.
2Section 39-22-105(3), C.R.S.
3Colo. Const. article IX,
§ 17.
4Calculated as the year-over-year change in the annual average consumer price index for all urban areas (CPI-U), published by the U.S. Bureau of Labor Statistics.
 
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