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SOI BULLETINA Quarterly Statistics of Income Report

The Statistics of Income (SOI) Bulletin is issued quarterly, in February, May, August, and November, by the Statistics of Income Division of the Internal Revenue Service. The report provides the earliest published annual financial statistics obtained from the various types of tax and information returns filed, as well as information from periodic or special ana-lytical studies of particular interest to students of the U.S. tax system, tax policymakers, and tax adminis-trators. Selected historical and other data tables, pre-viously published in every issue of the SOI Bulletin, now are published only in the spring issue of the Bul-letin. These tables are also available on SOI’s pages of the IRS Web site (www.irs.gov/taxstats).

Information on the availability of supplemen-tal data on the topics included in this issue, special tabulations undertaken on a reimbursable basis, or other SOI subjects, may be obtained by telephoning the SOI’s Statistical Information Services (202-874-0410), or by writing to the Director, Statistics of Income Division RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, D.C. 20013-2608.

The SOI Bulletin is prepared under the direction of Paul Arnsberger, Acting Chief, Communications and Data Dissemination Section. Paul Bastuscheck (layout and graphics), James Dalton (writer-editor), Clay Moulton (layout and graphics), Lisa Smith (lay-out and graphics editor), Camille Swick (layout and graphics), Bobbie Vaira (publishing services coordi-nator), and Dorothy Wallace (layout and graphics) are the editorial staff who prepare the manuscript. Jim Hobbs and Emily Gross also made major con-tributions in the production of this issue. Views ex-pressed in the articles are those of the authors and do not necessarily represent the views of the Treasury Department or the Internal Revenue Service.

NOTE: When using information from this report, cite the publication as follows—Internal Revenue ServiceStatistics of Income BulletinWinter 2010Washington, D.C.

For sale by theSuperintendent of DocumentsP.O. Box 371954Pittsburgh, PA 15250–7954

Volume 29 , Number 3

Featured Articles:Individual Income Tax Returns, Preliminary Data, 2008 5by Michael Parisi

Individual Income Tax Rates and Shares, 2007 18by Adrian Dungan and Kyle Mudry

Sales of Capital Assets Reported on Individual Tax Returns, 2007 76by Janette Wilson and Pearson Liddell

Projections of Federal Tax Return Filings: Calendar Years 2009–2016 106by Brett Collins

Foreign Recipients of U.S. Income, 2007 116by Scott Luttrell

Changing Times: An Analysis of the 2007 Revision of the Split-Interest Trust Information Return 130by Lisa Schreiber Rosenmerkel

Unrelated Business Income Tax Returns, 2006 150by Jael Jackson

Interest-Charge Domestic International Sales Corporations, Tax Years 2004, 2005, and 2006 174by Daniel Holik

Departments:SOI Sampling Methodology and Data Limitations 215Public Release of SOI Information 218SOI Projects and Contacts 219SOI Products and Services 223Index—Previously Published Articles and Data Releases Inside Back Cover

Inside this Issue 2

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Individual Income Tax Returns, Preliminary Data, 2008by Michael ParisiFor Tax Year 2008, taxpayers filed 142.4 million U.S. individual income tax returns, a decrease of 0.5 percent from the 143.0 million returns filed for 2007. For the first time since Tax Year 2002, Adjusted Gross Income (AGI) and several other notable items showed a decline. Between 2007 and 2008, AGI decreased by 3.7 percent to $8.2 trillion. Key com-ponents that contributed to the decline in AGI were net capital gains, which decreased 40.4 percent from $749.1 billion in 2007 to $446.6 billion in 2008, and capital gain distributions (part of net capital gains), which decreased 74.6 percent to $22.0 billion. Over the same period, taxable income decreased 5.1 per-cent to $5.6 trillion; total income tax decreased by 6.2 percent to $1.0 trillion; and total tax liability fell by 6.0 percent to just under $1.1 trillion. However, despite the decreases in income and other taxes, the alternative minimum tax rose 6.3 percent to $22.2 billion for 2008.

Individual Income Tax Rates and Shares, 2007by Adrian Dungan and Kyle MudryTaxpayers filed 143.0 million returns for Tax Year 2007, excluding returns filed by individuals only to receive a payment authorized under the Economic Stimulus Act of 2008 and who had no other reason to file. Of these 143.0 million returns, 96.3 million (or 67.3 percent) were classified as taxable returns. A taxable return is a return that has total income tax greater than $0. This represents an increase of 3.8 percent in the number of taxable returns filed in 2006. Adjusted gross income (AGI) on these taxable returns also rose, increasing 8.5 percent to $8,072 billion for 2007, while total income tax rose 9.0 percent to $1,116 billion. The average tax rate for taxable returns was unchanged in 2007, sustaining its 2006 level of 13.8 percent.

Taxpayers with an AGI of at least $410,096, the top 1 percent of taxpayers, accounted for 22.8 per-cent of AGI for 2007. This represents an increase in income share of 0.8 percentage points from the previous year. These taxpayers accounted for 40.4 percent of the total income tax reported, an increase from 39.9 percent in 2006. The top 5 percent of tax-payers accounted for 37.4 percent of AGI and 60.6 percent of total income tax. To be included in the

top 5 percent, a taxpayer must have reported an AGI of at least $160,041, whereas, in 2006, the cutoff for this group was $153,542.

Sales of Capital Assets Reported on Individual Tax Returns, 2007by Janette Wilson and Pearson LiddellFor Tax Year 2007, taxpayers realized $914.0 billion in net capital gains less losses, reported on 283.1 million asset transactions with overall sales of $5.3 trillion. Passthrough income represented the largest share of net gains less losses, followed by corporate stock. Passthrough gains reflect gains from sales of capital assets by partnerships, S corporations, or fiduciaries that are reported and taxed on individual income tax returns. Passthrough income of $366.9 billion represented 40.1 percent of all net gains, while $227.9 billion from sales of corporate stock accounted for 24.9 percent of the total. This repre-sents a major change, as, historically, gains on cor-porate stock have accounted for the largest share of total net capital gains less losses. A significant share of the passthrough gains, however, likely represent capital gains from the sale of stock and other securi-ties by investment partnerships.

Projections of Federal Tax Return Filings: Calendar Years 2009-2016 by Brett CollinsA grand total of 238 million tax returns are projected to be filed with the IRS during Calendar Year (CY) 2010. This number represents a decrease of 1 per-cent from the estimated CY 2009 filings of 240.4 million returns. The primary cause of the decrease in total returns from 2009 to 2010 is the residual ef-fect of the Economic Stimulus Act of 2008, which produced an estimated 14.4 million returns above baseline projections for Forms 1040, 1040A, and 1040EZ in CY 2010. The decrease in return counts for CY 2010 also reflects the expected recession-ary period in the U.S. economy. After CY 2010, grand total return filings are projected to grow at a more common average annual rate of 1.1 percent and are expected to reach 253.6 million returns by CY 2016. Total electronically filed individual in-come tax returns are estimated to be 66 percent of all individual income tax returns filed in CY 2009 and are projected to constitute 79 percent of all returns in CY 2016.

Inside this Issue

Inside this IssueStatistics of Income Bulletin | Winter 2010

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Foreign Recipients of U.S. Income, 2007by Scott LuttrellU.S.-source income payments to foreign persons, as reported on Form 1042-S, rose to $646.5 billion in Tax Year 2007. This amount represents an increase of 70.9 percent from the amount paid to foreign recipients in 2005. Foreign corporations received $472.0 billion (73.0 percent) of the total income paid to foreign recipients, and were assessed U.S. tax at an average effective rate of 12.3 percent. Foreign governments and international organizations collect-ed the next largest share, $41.9 billion (6.5 percent). Foreign partnerships and foreign trusts (3.0 percent) and foreign individuals (2.7 percent) received a com-bined $37.0 billion in gross income.

Interest, dividends, and other passive types of income comprise the vast majority of U.S.-source in-come paid to foreign persons that is subject to Form 1042-S reporting. In 2007, foreign persons received $376.6 billion in U.S.-source interest payments, which represents 58.3 percent of total gross income paid. Dividend payments to foreign recipients to-taled $134.0 billion (20.7 percent) while notional principal contract income was $68.9 billion (10.7 percent). Payments of rents and royalties, personal services income, and social security and railroad re-tirement benefits combined for $33.0 billion.

In 2005 and 2006, residents of the United King-dom (U.K.) received the most U.S.-source income. However, in 2007, income paid to the U.K. fell to $77.1 billion and was surpassed by the Cayman Is-lands.

Changing Times: An Analysis of the 2007 Revision of the Split-Interest Trust Information Returnby Lisa Schreiber RosenmerkelIn part due to the Pension Protection Act of 2006, major revisions were made to the Split-Interest Trust Information Return, Form 5227, for Tax Year 2007. These revisions increased the information reported for all types of split-interest trusts. Preparers of Forms 5227 for charitable lead trusts and pooled in-come funds are now required to report trust income on this return. All split-interest trust types must disclose the names of charities that receive distribu-tions, as well as the amount and type of the distri-bution. Charitable remainder unitrusts must now disclose details regarding their distribution structure

as determined at their creation. All initial and ad-ditional contributions to split-interest trusts must be reported. In addition to these structural changes, the Pension Protection Act of 2006 required that all reported information not pertaining to an individual be disclosed to the public. Details relating to non-charitable beneficiaries and donations to the trust throughout its lifetime remain private. In Filing Year 2008, 123,498 Forms 5227 were filed, primar-ily for Tax Year 2007. Charitable remainder trusts were the most common filers of Form 5227, filing 115,489 returns in 2008.

Unrelated Business Income Tax Returns, 2006by Jael JacksonGross unrelated business income reported by chari-table and other types of tax-exempt organizations in-creased 4 percent between Tax Years 2005 and 2006. The $11.3 billion in gross unrelated business income reported for Tax Year 2006 were offset by $10.0 bil-lion in deductions. The resulting net unrelated busi-ness taxable income, reported as unrelated business income (less deficit), totaled $1.3 billion for Tax Year 2006, which is 6 percent higher than reported in the previous tax year. Total tax reported on Form 990-T, which comprised the sum of the unrelated business income tax and certain additional taxes, less credits, was $556.2 million. Additional taxes included $6.5 million of alternative minimum tax, $5.5 million of proxy tax on certain nondeductible lobbying and political expenditures, and $0.21 million of other taxes. Total tax credits equaled $11.5 million for Tax Year 2006, exceeding the amount of additional taxes reported. Tax credits included the foreign tax credit ($6.8 million), general business credit ($4.0 million), credit for prior-year minimum tax ($0.2 million), and other credits ($0.5 million).

Interest-Charge Domestic International Sales Corporations, Tax Years 2004, 2005, and 2006by Daniel HolikThere were 425 active IC-DISC returns filed for Tax Year 2004, 876 for Tax Year 2005, and 1,209 for Tax Year 2006. IC-DISC export gross receipts, one mea-sure of overall IC-DISC export activities, increased by 266 percent from Tax Year 2004 ($5,272 mil-lion) to Tax Year 2006 ($19,286). Net income (less deficit) rose from $448 million for Tax Year 2004, to $1,114 million for Tax Year 2005, and to $1,731

Inside this IssueStatistics of Income Bulletin | Winter 2010

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million for Tax Year 2006. Between Tax Years 2004 and 2006, actual distributions to IC-DISC sharehold-ers increased 317 percent, from $433 million for Tax Year 2004 to $1,805 million for Tax Year 2006.

In the Next IssueThe following articles are tentatively planned for inclusion in the spring 2010 issue of the Statistics of

Income Bulletin, scheduled to be published in May 2010:

Gift Tax Returns, 2008;

Fiduciary Income Panel, Tax Years 2002-2008;

High-Income Returns for 2007; and

Individual Noncash Contributions, 2007.

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Individual Income Tax Returns, Preliminary Data, 2008by Michael Parisi

F or Tax Year 2008, taxpayers filed 142.4 million U.S. individual income tax returns, a decrease of 0.5 percent from the 143.0 million returns filed for 2007.1 For the first time since Tax Year 2002, Adjusted Gross Income (AGI) and several other no-table items showed a decline. AGI decreased from 2007 by 3.7 percent to $8.2 trillion for 2008. Tax-able income decreased 5.1 percent to $5.6 trillion; total income tax decreased by 6.2 percent to $1.0 tril-lion; and total tax liability fell by 6.0 percent to just under $1.1 trillion. However, despite the decreases in income and other taxes, the alternative minimum tax rose 6.3 percent to $22.2 billion for 2008.

Figure A shows some of the key components that contributed to the decline in AGI from 2007. Net capital gains decreased 40.4 percent, from $749.1 billion in 2007 to $446.6 billion in 2008, capital gain distributions (part of net capital gains) decreased 74.6 percent to $22.0 billion. Increases in losses associated with business income were reported for Tax Year 2008 by partnership and S corporations (49.8 percent), business sole proprietorships (11.3 percent), and farms (7.4 percent). For the first two, this contributed to de-creases in net income less losses compared to 2007 of 12.5 percent for partnerships and S corporations and 5.4 percent for business sole proprietorships.

Further, for 2008, 9.6 million returns (a 24.1-per-cent increase from 2007) reported a total of $43.9 billion in taxable unemployment compensation. This represents a 47.6-percent increase from 2007. Another component of AGI, ordinary dividends decreased 7.9 percent to $197.6 billion. Of this dividend total, 73.3 percent was reported as quali-fied dividends. Qualified dividends, which receive preferential tax rates, were reported on 26.2 million returns and totaled $144.8 billion, an increase of 1.3 percent from 2007.

Some components of AGI showed increases, including the largest component of AGI, salaries and wages, which increased 1.5 percent to $6,022.4 bil-lion for Tax Year 2008. The second largest income

Michael Parisi is an economist with the Individual Returns Analysis Section (IRAS). This article was prepared un-der the direction of Jeff Hartzok, Chief, IRAS section and Michael Strudler, Chief, Individual Research Section.

item, taxable pension and annuities, also increased. Taxable pension and annuities increased 2.2 percent, from $504.1 billion for 2007 to $515.0 billion for 2008. The other items related to retirement, taxable Social Security benefits, and IRA distributions also rose for 2008, by 0.3 percent and 7.7 percent, respec-tively. One income item not related to retirement that did increase was rent and royalty net income. Reported amounts increased by 16.5 percent to $92.8 billion for 2008.

Statutory adjustments to total income decreased 1.9 percent to $115.9 billion for Tax Year 2008. The largest statutory adjustment was the deduction for one-half of self-employment tax, representing 19.5 percent of the total. This adjustment to income decreased 1.8 percent to $22.6 billion. The self-em-ployment health insurance deduction decreased 0.5 percent to $19.3 billion. Payments to self-employed retirement (Keogh) plans fell 8.2 percent to $18.5 billion, while deductible contributions to Individual Retirement Arrangements (IRAs) decreased 9.7 per-cent to $11.9 billion. The deduction for tuition and fees rose 3.6 percent to $11.0 billion, and the deduc-tion for student loan interest increased 3.3 percent to $7.8 billion. With a tax law change for 2008, in which contributions were no longer limited to the an-nual health plan deductible, over 810,000 taxpayers (a 39.4-increase from 2007) who made contributions to qualified health savings accounts took an adjust-ment totaling over $2.1 billion (a 47.1-percent in-crease from 2007). Altogether, the amount deducted for total exemptions increased by 3.0 percent, from $954.8 billion for 2007 to $983.3 billion for 2008.

Total deductions, the sum of the standard deduc-tion and total itemized deductions (after limitation) equaled $1,960.1 billion, an increase of 1.0 percent from Tax Year 2007. The number of returns claiming the standard deduction decreased 0.3 percent, ac-counting for 64.6 percent of all returns filed and 35.7 percent of the total deductions amount. Due to infla-tion indexing and law changes, the average standard deduction (comprised of the basic and additional stan-dard deductions for age and blindness) increased 4.4 percent, from $7,278 for 2007 to $7,602 for 2008.

New for 2008, a taxpayer could have increased the standard deduction by the amount paid for certain

1 For Tax Year 2007, the total number of returns count does not include individual income tax returns filed by individuals only to receive the economic stimulus payment and who had no other reason to file.

Individual Income Tax Returns, Preliminary Data, 2008Statistics of Income Bulletin | Winter 2010

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Figure A

(1) (2) (3) (4) (5) (6)

Number of returns, total [1] 143,030,461 142,350,256 -0.5 N/A N/A N/A Form 1040 returns 85,745,233 83,884,991 -2.2 N/A N/A N/A Form 1040A returns 34,025,192 36,540,998 7.4 N/A N/A N/A Form 1040EZ returns 23,260,036 21,924,264 -5.7 N/A N/A N/A Electronically-filed returns [2] 89,319,350 96,573,046 8.1 N/A N/A N/AAdjusted gross income (less deficit) 143,030,461 142,350,256 -0.5 8,531,396,107 8,213,442,867 -3.7Salaries and wages 121,575,652 120,006,001 -1.3 5,936,291,341 6,022,463,633 1.5 Taxable interest 65,539,247 62,478,944 -4.7 231,533,659 197,166,925 -14.8 Tax-exempt interest [3] 6,291,259 6,403,595 1.8 76,071,765 72,586,685 -4.6 Ordinary dividends 32,200,676 30,850,795 -4.2 214,602,175 197,602,724 -7.9 Qualified dividends 27,272,187 26,234,679 -3.8 142,968,704 144,840,020 1.3 State income tax refunds 23,767,816 22,969,373 -3.4 25,102,093 25,260,849 0.6 Alimony received 464,900 435,376 -6.4 8,330,494 8,254,879 -0.9 Business or profession net income 16,832,343 16,385,177 -2.7 316,576,566 308,133,596 -2.7 Business or profession net loss 5,744,898 5,670,884 -1.3 52,570,799 58,509,927 11.3 Business or profession net income less loss 22,577,241 22,056,061 -2.3 264,005,767 249,623,669 -5.4Net capital gain [4] 19,600,390 11,187,343 -42.9 749,142,977 446,595,066 -40.4Capital gain distributions [4] 15,858,031 11,538,101 -27.2 86,375,840 21,972,213 -74.6 Net capital loss 7,571,865 12,301,042 62.5 16,550,418 28,417,726 71.7 Sales of property other than capital assets net gain 858,728 744,331 -13.3 11,750,123 10,436,594 -11.2 Sales of property other than capital assets net loss 790,247 865,098 9.5 9,205,398 17,807,063 93.4 Sales of property other than capital assets net gain less loss 1,648,976 1,609,429 -2.4 2,544,726 -7,370,469 -389.6 Taxable Individual Retirement Arrangement distributions 11,146,808 11,316,651 1.5 148,543,305 160,022,157 7.7 Taxable pensions and annuities 26,555,679 25,856,207 -2.6 504,106,952 515,035,286 2.2 Rent and royalty net income 5,854,329 5,978,139 2.1 79,631,034 92,793,355 16.5 Rent and royalty net loss 5,458,342 5,540,151 1.5 60,896,603 63,632,958 4.5 Rent and royalty net income less loss 9,802,694 9,925,815 1.3 18,734,431 29,160,397 55.7

S

Percentagechange 2007 2008

Percentagechange

Individual Income Tax Returns, Preliminary Data: Selected Income and Tax Items, Tax Years 2007and 2008[All figures are estimates based on samples—money amounts are in thousands of dollars]

ItemNumber of returns Amount

2007 2008

Partnership and S corporation net income 4,647,554 4,517,758 -2.8 471,414,946 468,560,093 -0.6 Partnership and S corporation net loss 2,488,614 2,626,223 5.5 90,200,748 135,082,672 49.8 Partnership and S corporation net income less loss 7,136,168 7,143,981 0.1 381,214,198 333,477,421 -12.5 Estate and trust net income 498,106 520,680 4.5 16,254,546 17,056,025 4.9 Estate and trust net loss 41,114 40,464 -1.6 1,290,666 2,511,370 94.6 Estate and trust net income less loss 539,220 561,144 4.1 14,963,881 14,544,655 -2.8 Farm net income 571,142 567,581 -0.6 10,862,108 13,114,524 20.7 Farm net loss 1,423,349 1,391,073 -2.3 24,116,600 25,894,327 7.4 Unemployment compensation 7,735,444 9,597,502 24.1 29,752,241 43,911,028 47.6 Taxable Social Security benefits 15,194,849 15,145,770 -0.3 169,112,251 169,670,897 0.3Total statutory adjustments 35,904,216 35,563,477 -0.9 118,152,497 115,901,028 -1.9Educator expenses 3,692,983 3,796,150 2.8 936,226 957,289 2.2Certain business expenses of reservists, performing artists, and fee-basis government officials 137,353 129,293 -5.9 428,090 414,943 -3.1Payments to an Individual Retirement Arrangement 3,370,132 2,783,721 -17.4 13,191,054 11,905,552 -9.7Student loan interest deduction 9,163,092 9,185,924 0.2 7,513,854 7,761,966 3.3Tuition and fees deduction 4,570,841 4,588,503 0.4 10,647,111 11,031,337 3.6Health savings account deduction 581,438 810,279 39.4 1,447,829 2,129,150 47.1Moving expenses adjustment 1,117,958 1,112,592 -0.5 2,872,755 2,995,993 4.3Self-employment tax deduction 17,577,880 17,211,728 -2.1 23,000,491 22,588,905 -1.8Self-employed health insurance deduction 3,568,995 3,361,579 -5.8 19,360,871 19,257,165 -0.5Payments to a self-employed retirement (Keogh) plan 1,136,764 965,847 -15.0 20,143,628 18,499,501 -8.2Penalty on early withdrawal of savings 1,215,946 1,298,035 6.8 352,592 371,912 5.5Footnotes at end of figure.


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Figure A—Continued

(1) (2) (3) (4) (5) (6)Alimony paid 590,120 572,761 -2.9 9,024,966 9,313,168 3.2Domestic production activities deduction 448,113 478,111 6.7 6,639,450 6,959,041 4.8Other adjustments [5] 140,482 150,914 7.4 1,255,655 1,585,910 26.3Total exemptions [6] 285,893,543 283,544,734 -0.8 954,799,390 983,256,537 3.0Total deductions 144,650,750 139,976,603 -3.2 1,941,302,670 1,960,087,456 1.0Total standard deduction 92,273,823 91,975,024 -0.3 671,612,131 699,190,365 4.1Basic standard deduction 92,273,823 91,975,024 -0.3 650,995,128 666,727,034 2.4Additional standard deduction 13,107,816 12,660,440 -3.4 20,617,003 20,184,197 -2.1Total itemized deductions (after limitation) 50,513,149 48,001,579 -5.0 1,269,690,539 1,260,897,091 -0.7Itemized deductions in excess of limitation 7,094,563 6,769,863 -4.6 35,146,670 16,849,836 -52.1Medical and dental expenses deduction 10,564,676 10,091,166 -4.5 75,428,123 74,530,672 -1.2Taxes paid deduction 50,087,819 47,683,306 -4.8 446,395,960 447,682,524 0.3 State and local income taxes [7] 48,607,452 46,320,617 -4.7 271,539,747 272,394,387 0.3 Income taxes 36,797,963 35,520,687 -3.5 253,235,796 254,836,486 0.6 General sales taxes 11,809,490 10,799,930 -8.5 18,303,951 17,557,892 -4.1Interest paid deduction 41,167,372 39,022,546 -5.2 502,340,630 481,166,292 -4.2Charitable contributions deduction 41,138,108 39,223,228 -4.7 174,504,204 161,869,762 -7.2Taxable income 110,808,532 108,090,446 -2.5 5,932,306,076 5,629,893,896 -5.1Alternative minimum tax 4,111,154 3,939,114 -4.2 20,915,080 22,223,196 6.3Income tax before credits 110,819,668 107,317,835 -3.2 1,155,078,777 1,099,247,705 -4.8Total tax credits [8] 48,374,530 55,271,787 14.3 62,170,319 73,739,010 18.6Child care credit 6,556,918 6,659,122 1.6 3,524,008 3,561,436 1.1Credit for the elderly or disabled 90,569 75,100 -17.1 12,296 10,209 -17.0Child tax credit 26,068,263 25,287,874 -3.0 31,753,697 30,713,081 -3.3Education tax credits 7,516,607 7,829,823 4.2 6,988,853 7,732,554 10.6Retirement savings contributions credit 5,970,293 6,043,397 1.2 997,343 993,687 -0.4Adoption credit 93,325 89,134 -4.5 384,523 354,490 -7.8Residential energy credits 4 411 698 227 620 -94 8 1 026 245 219 805 -78 6

Amount

2007 2008 Percentagechange

Individual Income Tax Returns, Preliminary Data: Selected Income and Tax Items, Tax Years 2007and 2008—Continued[All figures are estimates based on samples—money amounts are in thousands of dollars]

ItemNumber of returns

Percentagechange 2007 2008

Residential energy credits 4,411,698 227,620 -94.8 1,026,245 219,805 -78.6Foreign tax credit 7,602,568 6,680,064 -12.1 13,991,686 15,121,256 8.1General business credit 208,411 259,884 24.7 718,864 1,317,496 83.3Prior year minimum tax credit 370,848 397,357 7.1 1,020,767 976,587 -4.3First-time homebuyer credit N/A 1,193,315 N/A N/A 8,301,644 N/ARecovery rebate credit N/A 27,665,780 N/A N/A 11,579,431 N/ASelf-employment tax 17,577,880 17,211,728 -2.1 45,992,187 45,169,679 -1.8Total earned income credit (EIC) 24,970,376 25,007,059 0.1 49,696,835 51,596,164 3.8EIC used to offset income tax before credits 3,452,286 3,391,970 -1.7 948,515 978,766 3.2EIC used to offset other taxes 5,384,564 5,550,648 3.1 5,189,831 5,560,408 7.1Excess EIC, refundable portion 22,024,740 22,053,777 0.1 43,558,489 45,056,991 3.4Additional child tax credit 16,088,595 18,300,462 13.7 16,828,692 20,511,290 21.9Refundable prior year minimum tax credit 144,692 274,822 89.9 432,169 2,392,027 453.5Total income tax 96,374,701 90,718,339 -5.9 1,092,909,361 1,025,509,017 -6.2Total tax liability 100,352,051 94,721,187 -5.6 1,139,266,194 1,070,367,059 -6.0N/A—Not applicable.[1] For Tax Year 2007, the total number of returns does not include the returns filed by individuals only to receive the economic stimulus payment and who had no other reason file.[2] Included in data for Forms 1040, 1040A, and 1040EZ.[3] Not included in adjusted gross income.[4] Includes capital gain distributions reported on Form 1040 and Schedule D.[5] Other adjustments does not include the foreign housing deduction or the medical savings account deduction.[6] Data shown in columns 1 and 2 are the number of exemptions claimed on returns, rather than the number of returns with exemptions.[7] State and local income taxes is the total of both income taxes and general sales taxes.[8] Includes EIC used to offset income tax before credits, shown separately later in this figure.NOTE: Detail may not add to totals because of rounding.


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State and local real estate taxes and net disaster loss (see the Changes in Law section). Itemized deduc-tions were claimed on 33.7 percent of all returns filed for 2008 and represented 64.3 percent of the total de-ductions amount.2 The average total for itemized de-ductions (after limitation) was $26,268, a 4.5-percent increase from the 2007 average of $25,136.

Due to the AGI limitation on itemized deduc-tions, 6.8 million higher-income taxpayers were un-able to deduct $16.8 billion in itemized deductions, a decrease of 52.1 percent from 2007. This large decrease was due to a change in the law where the amount by which the deduction was reduced was only one-third of the amount of the reduction that would have otherwise applied. In 2007, the amount by which the deduction was reduced was only two-thirds of the amount.

The interest paid deduction was the largest de-duction, comprising 37.7 percent of total itemized deductions (before limitation). For 2008, it de-creased 4.2 percent to $481.2 billion. The Tax Relief and Health Care Act of 2006 extended the election to deduct State and local general sales taxes instead of State and local income taxes. For 2008, an estimated 10.8 million taxpayers elected to deduct State and lo-cal general sales taxes instead of local income taxes, deducting $17.6 billion. Including taxpayers who deducted State and local sales taxes, 4.7 percent few-er taxpayers took a deduction for State and local in-come and sales taxes, but the total amount of this de-duction increased 0.3 percent from 2007 levels. The total taxes paid deduction accounted for 35.0 percent of all itemized deductions and increased 0.3 percent to $447.7 billion. The deduction for medical and dental expenses went down by 1.2 percent to $74.5 billion, while the charitable contributions deduction decreased 7.2 percent to $161.9 billion for 2008.

Total tax credits used to offset income tax liabili-ties increased 18.6 percent to $73.7 billion. About 25.3 million taxpayers claimed $30.7 billion in child tax credits, down 3.3 percent from 2007. However, the additional child tax credit (a refundable separate credit) increased by 21.9 percent to $20.5 billion in 2008. This increase in the additional child tax credit was partially due to the law change for 2008 where the credit limit was increased from 15 percent of a taxpayer’s earned income that exceeded $11,750 in

2007 to 15 percent of a taxpayer’s earned income that exceeded $8,500 in 2008.

Other notable percentage increases for major tax credits included an 83.3-percent rise in general busi-ness credits to $1.3 billion, and a 10.6-percent rise in the education credits to $7.7 billion. For 2008, a change in law made some of the general business credits allowable against the alternative minimum tax, which led to the large increase in general busi-ness credits. The foreign tax credit also had an in-crease from 2007 of 8.1 percent to $15.1 billion.

The largest percentage decrease was in the resi-dential energy credits, which decreased 78.6 percent from 2007. This decrease was attributable to the nonbusiness energy property credit which expired in Tax Year 2008 making the credit only for businesses. For Tax Year 2009, the nonbusiness energy property credit will be available as in Tax Year 2007.

Tax Year 2008 introduced two new credits, the first-time homebuyer credit and the recovery rebate credit. The recovery rebate credit was claimed by 27.7 million taxpayers who had not received an economic stimulus payment or whose economic stimulus payment was under certain amounts (see the Changes in Law section). This resulted in $11.6 billion worth of credits against income tax for these taxpayers.

For Tax Year 2008, a taxpayer could have claimed the first-time homebuyer credit if he or she bought a home after April 8, 2008, and before No-vember 7, 2009, and did not own a home during the prior 3 years. The first-time homebuyer credit was claimed by 1.2 million taxpayers and totaled $8.3 bil-lion in 2008. Some taxpayers who purchased a home after filing a 2008 return may have filed an amended return to claim the credit. However, the data for the first-time homebuyer credit article do not include data from amended returns or any adjustment made to this credit by the IRS.

The total earned income credit (EIC) increased 3.8 percent to $51.6 billion for Tax Year 2008. The portion of the EIC used to offset income tax before credits increased 3.2 percent to $1.0 billion, and the portion of the EIC used to offset other taxes (such as the self-employment tax) rose 7.1 percent to $5.6 billion. The largest part of the EIC, the refundable portion, was treated as a refund and paid directly to

2 The remaining 1.7 percent of the returns did not need to claim either a standard deduction or itemized deductions because no AGI was reported.


9

taxpayers who had no tax liability against which to apply the credit. The refundable portion of the EIC increased 3.4 percent to $45.1 billion for 2008.

The comparisons of data for Tax Years 2007 and 2008 in this article are based on the preliminary es-timates for both years. A few income and tax items tend to be understated in preliminary estimates. Therefore, comparisons based on preliminary esti-mates for one year and final estimates for the previ-ous year could be misleading. Comparisons based entirely on preliminary estimates reduce the likeli-hood of misinterpretation of the data and afford a more accurate representation of year-to-year changes. Final statistics for Tax Year 2007 are available in the fall 2008 issue of the SOI Bulletin and Statistics of Income—2007, Individual Income Tax Return.

Changes in LawIn general, the definitions used in this article are the same as those in Statistics of Income—2007, Individ-ual Income Tax Returns. The following is a partial list of tax law and Internal Revenue Service admin-istrative changes that had a major bearing on the Tax Year 2008 preliminary data presented in this article.

Additional Child Tax Credits—Modifications were made to the additional child tax credit for 2008. In Tax Year 2007, the credit limit based on earned income was 15 percent of a taxpayer’s earned income that exceeded $11,750. For 2008, the limit was 15 percent of a taxpayer’s earned income that exceeded $8,500.

Alternative Minimum Tax (AMT)—For Tax Year 2008, the minimum exemption increased to $69,950 for a married couple filing a joint return, up from $66,250 in 2007, and to $46,200 for singles and heads of household, up from $44,350, and to $34,975, up from $33,125 for a married person filing separately.

Earned Income Credit—The maximum amount of the earned income credit increased, as did the amounts of earned income and investment income an individual could have and still claim the credit. The maximum amount of investment income (interest, dividends, and capital gain income) a taxpayer could have and still claim the credit increased to $2,950 from $2,900. The maximum credit for taxpayers with no qualifying children increased to $438 from $428. For these taxpayers, earned income and AGI had to be less than $12,880 ($15,880 if married fil-ing jointly) to get any EIC. For taxpayers with one

qualifying child, the maximum credit increased from $2,853 to $2,917 and, for taxpayers with two or more qualifying children, the maximum credit increased to $4,824 from $4,716. To be eligible for the credit, a taxpayer’s earned income and AGI had to be less than $33,995 ($36,995 for married filing jointly) for one qualifying child, or less than $38,646 ($41,646 for married filing jointly) for two or more qualifying children.

Exemption Amount—For Tax Year 2008, the exemption amount increased by $100 to $3,500. Taxpayers could have lost a portion of their exemp-tion benefits if their adjusted gross incomes were above certain amounts ($119,975 for married persons filing separately, $159,950 for single individuals, $199,950 for heads of household, and $239,950 for married persons filing jointly or qualifying widow(er)s). For 2008, a taxpayer could lose no more than one-third of the dollar amount of his or her exemption, so that the amount of each exemption could not be reduced to less than $2,333. For 2007 and 2006, a taxpayer could lose no more than two-thirds of the dollar amount of his or her exemption. For 2005 and previous years, exemption amounts could be limited to zero.

First Time Homebuyer Credit—New for Tax Year 2008, a taxpayer may have claimed this credit if he or she bought a home after April 8, 2008, and before December 1, 2009, and did not own a main home during the prior 3 years. Taxpayers were allowed to claim this credit in Tax Years 2008 or 2009 if their modified adjusted gross incomes were below $95,000 ($170,000 if married filing jointly). For homes purchased in 2008, the credit operates much like an interest-free loan. Taxpayers generally had to repay the credit over a 15-year period. For homes purchased in 2009, a taxpayer had to repay the credit only if the home ceases to be his or her main home within a 36-month period beginning on the purchase date.

General Business Credit—For 2008, certain busi-ness credits like the investment credit were allowed against the alternative minimum tax.

Health Savings Account Deduction—For Tax Year 2008, contributions were not limited to the taxpayer’s annual health plan deductible. The maximum HSA deduction increased by $50 to $2,900 ($5,800, if family coverage, up from $5,650). These limits were $900 higher if the taxpayer was age 55 or older.


10

Indexing—The following items increased due to indexing for inflation: personal exemption amounts, basic standard deduction amounts, tax bracket boundaries, and beginning income amounts for limit-ing certain itemized deductions and for the reduction of personal exemption deductions. The maximum amount of earnings subject to self-employment tax increased based on the percentage change in average covered earnings.

Individual Retirement Arrangement Deduc-tion—The phaseout range for IRA deductions for those covered by a retirement plan began at income of $85,000 if married filing jointly or a qualifying window(er), up from $83,000 in 2007. The phaseout was $53,000 for a single person or head of house-hold, up from $52,000 in 2007, and $0 for a married person filing a separate return. Taxpayers may have been able to deduct an additional $3,000 if they were participants in a 401(k) plan and their employers were in bankruptcy in an earlier year.

Limit on Itemized Deductions Increased—Tax-payers who had adjusted gross incomes above $159,950 ($79,975 if married filing separately) could have lost part of the deduction for itemized deduc-tions. This was an increase from 2007 amounts of $156,400 ($78,200 if married filing separately). For Tax Year 2008, the amount by which the deduc-tion was reduced was only one-third of the amount of the reduction that would have otherwise applied (for 2005 and previous years). For Tax Years 2007 and 2006, the amount by which the deduction was reduced was only two-thirds of the amount of the re-duction that would have otherwise applied.

Qualified Dividends and Net Capital Gain—For Tax Year 2008, the 5-percent tax rate on qualified dividends and net capital gains was reduced to zero.

Real Estate Tax and Net Disaster Loss deduc-tion—New for 2008, a taxpayer could increase the standard deduction by the amount he or she paid for certain State and local real estate taxes and the net disaster loss. A taxpayer could have increased the standard deduction by State and local real estate tax-es paid, up to $500 ($1,000 if married filing jointly). The real estate taxes must be taxes that would have been deductible on Schedule A if a taxpayer had itemized their deductions. A taxpayer’s net disaster

loss was figured by taking personal casualty losses from a Federally declared disaster minus any per-sonal casualty gains. A total of $12.3 billion were deducted due to the addition of these two new provi-sions. Most of this ($11.5 billion) was deducted by 16 million taxpayers for real estate taxes.

Recovery Rebate credit—A taxpayer was able to take this credit only if he or she had not received an economic stimulus payment in Tax Year 2007 or the economic stimulus payment was less than $600 ($1,200 if married filing jointly) plus $300 for each qualifying child the taxpayer had for 2008. This credit was figured like the economic stimulus pay-ment the previous year except that the amounts are based on Tax Year 2008 instead of Tax Year 2007. The maximum credit was $600 ($1,200 if married fil-ing jointly) plus $300 for each qualifying child.

Standard Deduction Amount Increased—The standard deduction for taxpayers who did not item-ize deductions on Schedule A of Form 1040 was, in most cases, higher for 2008 than it was in 2007. The amount depended on filing status, being 65 or older or blind, and whether an exemption could be claimed for a taxpayer by another person. For 2008, the stan-dard deduction increased to $10,900 for joint filers, up from $10,700 in 2007. For single filers and mar-ried filing separately, the deduction amount increased to $5,450. For heads of households, the deduction was $8,000. In addition, the additional standard de-duction for being 65 or older or blind was increased by $50 per taxpayer for single and head of household filers only.

Data Sources and LimitationsThe preliminary statistics in this data release are based on a sample of individual income tax returns (Forms 1040, 1040A, and 1040EZ including elec-tronically filed returns) filed during Calendar Year 2009. Returns in the sample were stratified based on: (1) the larger of positive income or negative in-come; (2) the size of business and farm receipts; (3) the presence or absence of specific forms or sched-ules; and (4) the usefulness of returns for Treasury Department tax modeling purposes.3 Returns were then selected at rates ranging from 0.1 percent to 100 percent. The preliminary Tax Year 2008 data

3 Returns in the sample were stratified based on the presence or absence of one or more of the following forms or schedules: Form 2555, Foreign Earned Income; Form 1116, Foreign Tax Credit (Individual).


11

are based on a sample of 256,033 returns and an estimated final population of 142,466,099 returns. The corresponding sample and population for the preliminary 2007 data were 262,319 and 153,673,511 returns, respectively.

Since the data presented here are estimates based on a sample of returns filed, they are subject to sampling error. To properly use the statistical data provided, the magnitude of the potential sampling er-ror must be known; coefficients of variation (CV’s) are used to measure that magnitude. The reliability of estimates based on samples, and the use of coef-ficients of variation for evaluating the precision of

estimates based on samples, are discussed in the ap-pendix to this issue of the Bulletin.

While the preliminary estimates are intended to represent a full year of taxpayer reporting, they are actually based on returns processed for tax adminis-tration purposes, in the case of 2008 returns, between January and late September of 2009. In general, returns processed during the remainder of each year tend to have somewhat different characteristics com-pared to returns processed earlier. These character-istics include, for example, disproportionately large amounts of investment income, passive losses, and alternative minimum tax.


12

Size of adjusted gross income

(1) (2) (3) (4) (5) (6) (7) (8)

$250,000or more

Table 1. Individual Income Tax Returns, Tax Year 2008 Preliminary Data: Selected Income and Tax Items, by Size of Adjusted Gross Income[All figures are estimates based on samples—money amounts are in thousands of dollars]

Item All returns Under$15,000 [1]

$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

$100,000under

$200,000

$200,000under

$250,000

Number of returns, total 142,350,256 37,778,377 29,710,475 25,598,548 31,043,264 13,851,199 1,531,674 2,836,719 Form 1040 returns 83,884,991 14,649,539 11,613,840 14,605,646 25,092,562 13,555,011 1,531,674 2,836,719

Form 1040A returns 36,540,998 10,751,266 12,834,155 7,847,981 4,834,044 273,552 0 0

Form 1040EZ returns 21,924,264 12,377,573 5,262,477 3,144,920 1,116,658 22,636 0 0

Electronically filed returns [2] 96,573,046 23,738,729 21,264,754 18,228,055 21,482,571 9,329,192 960,483 1,569,262

Adjusted gross income (less deficit) 8,213,442,867 123,672,649 655,372,449 1,001,180,490 2,202,688,295 1,844,904,428 340,239,354 2,045,385,203Salaries and wages:

Number of returns 120,006,001 27,733,901 25,329,838 22,784,149 27,674,178 12,614,964 1,387,996 2,480,975

Amount 6,022,463,633 225,996,571 530,863,416 828,021,366 1,739,971,142 1,438,346,077 248,784,303 1,010,480,758

Taxable interest:


Amount 197,166,925 16,609,941 13,542,962 16,849,200 41,092,565 34,824,154 7,999,685 66,248,417

Tax-exempt interest: [3]

Number of returns 6,403,595 539,735 442,118 647,070 1,739,945 1,598,938 329,553 1,106,236

Amount 72,586,685 2,947,710 2,230,006 4,060,637 11,109,908 12,922,775 3,595,083 35,720,565

Ordinary dividends:

Number of returns 30,850,795 4,470,719 3,223,186 4,114,989 9,009,484 6,737,450 1,014,771 2,280,198Number of returns 30,850,795 4,470,719 3,223,186 4,114,989 9,009,484 6,737,450 1,014,771 2,280,198

Amount 197,602,724 8,655,248 7,144,194 9,563,145 29,840,123 35,100,773 8,842,617 98,456,625

Qualified dividends:

Number of returns 26,234,679 3,728,480 2,634,921 3,396,814 7,576,489 5,870,732 911,776 2,115,471

Amount 144,840,020 4,930,630 4,072,955 5,663,505 19,231,689 25,197,772 6,712,343 79,031,124

State income tax refunds:

Number of returns 22,969,373 547,205 1,279,536 3,587,473 9,803,367 6,257,841 583,338 910,615

Amount 25,260,849 693,195 701,001 2,174,754 7,796,090 7,124,499 1,016,609 5,754,701

Alimony received:

N b f t 435 376 72 083 109 688 103 609 110 879 32 262 2 115 4 740 Number of returns 435,376 72,083 109,688 103,609 110,879 32,262 2,115 4,740

Amount 8,254,879 513,774 1,034,098 1,403,103 3,001,396 1,467,683 131,911 702,914

Business or professional net income:

Number of returns 16,385,177 5,302,191 2,610,854 2,200,963 3,448,315 1,989,248 272,808 560,800

Amount 308,133,596 38,722,615 31,574,688 28,668,190 55,893,626 61,181,344 16,949,924 75,143,211

Business or professional net loss:

Number of returns 5,670,884 1,066,531 881,284 1,001,565 1,591,908 857,350 91,603 180,642

Amount 58,509,927 21,329,477 6,830,010 7,434,906 9,957,601 6,058,886 1,090,470 5,808,573

Net capital gain: [4]p g [ ]


Amount 446,595,066 14,381,346 3,243,459 4,806,397 18,807,797 30,783,442 11,261,200 363,311,425

Capital gain distributions: [4]


Amount 21,972,213 1,345,170 1,109,327 1,286,904 4,427,964 4,763,094 1,177,436 7,862,318

Net capital loss:


Amount 28,417,726 4,638,977 2,629,056 3,173,427 7,472,867 6,195,037 1,159,264 3,149,099Sales of property other than capitalSales of property other than capitalassets, net gain:

Number of returns 744,331 106,844 78,748 93,586 197,984 126,350 24,520 116,300

Amount 10,436,594 1,102,920 545,044 714,200 1,548,981 1,383,343 347,077 4,795,031

Footnotes at end of table.


13


(1) (2) (3) (4) (5) (6) (7) (8)S f

Table 1. Individual Income Tax Returns, Tax Year 2008 Preliminary Data: Selected Income and Tax Items, by Size of Adjusted Gross Income—Continued[All figures are estimates based on samples—money amounts are in thousands of dollars]


$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

$100,000under

$200,000

$200,000under

$250,000

$250,000or more

Sales of property other than capital assets, net loss:


Amount 17,807,063 11,540,619 725,021 532,049 1,011,089 1,131,772 211,637 2,654,874Taxable Individual Retirement Arrangement distributions:


Amount 160,022,157 8,166,993 12,487,582 18,013,766 49,871,979 43,785,938 8,051,046 19,644,854

Taxable pensions and annuities:


Amount 515,035,286 25,608,777 54,861,601 78,340,985 183,494,490 127,338,053 16,342,618 29,048,762

Rent and royalty net income:

Number of returns 5,978,139 839,380 734,659 802,857 1,659,388 1,201,221 194,733 545,901

Amount 92,793,355 6,025,471 4,860,112 5,509,842 15,027,045 18,411,361 4,985,962 37,973,562

Rent and royalty net loss:


Amount 63,632,958 14,344,213 6,093,525 7,949,143 17,666,172 9,438,667 1,550,536 6,590,702Partnership and S corporation net p pincome:


Amount 468,560,093 4,117,408 4,077,396 6,037,434 22,432,269 45,492,106 18,435,932 367,967,547Partnership and S corporationnet loss:

Number of returns 2,626,223 542,788 215,779 303,790 652,549 542,748 92,518 276,051

Amount 135,082,672 80,393,687 2,862,087 4,066,165 7,353,164 8,488,856 2,440,925 29,477,787

Estate and trust net income:

Number of returns 520,680 52,218 47,909 52,910 128,706 140,604 23,484 74,851Number of returns 520,680 52,218 47,909 52,910 128,706 140,604 23,484 74,851

Amount 17,056,025 341,184 302,468 355,794 1,713,514 2,613,458 876,003 10,853,605

Estate and trust net loss:


Amount 2,511,370 1,762,989 12,451 61,839 46,184 64,762 15,600 547,548

Farm net income:


Amount 13,114,524 925,728 774,597 1,230,620 3,507,846 3,104,474 922,787 2,648,471

Farm net loss:

Number of returns 1 391 073 266 591 189 605 239 093 436 240 178 328 20 870 60 345 Number of returns 1,391,073 266,591 189,605 239,093 436,240 178,328 20,870 60,345

Amount 25,894,327 7,537,731 2,484,034 3,106,530 5,649,558 3,223,129 524,991 3,368,354

Unemployment compensation:

Number of returns 9,597,502 1,739,664 2,657,276 2,044,746 2,311,414 730,400 56,312 57,687

Amount 43,911,028 6,328,725 12,317,444 9,702,058 11,040,196 3,876,506 279,733 366,362

Taxable Social Security benefits:


Amount 169,670,897 367,031 5,656,263 25,502,786 83,157,005 40,566,742 4,812,345 9,608,725

Total statutory adjustments: Number of returns 35,563,477 7,117,382 5,185,526 6,027,579 9,722,600 5,713,351 538,432 1,258,610

Amount 115,901,028 10,498,132 8,865,291 12,037,270 24,524,752 25,416,804 5,542,765 29,016,013



14


(1) (2) (3) (4) (5) (6) (7) (8)



$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

$100,000under

$200,000

$200,000under

$250,000

$250,000or more

Educator expenses:


Amount 957,289 19,651 61,828 170,150 393,244 279,784 15,751 16,879Certain business expenses of reservists, performing artists, and fee-basisgovernment officials:


Amount 414,943 107,870 38,590 33,897 134,700 73,233 10,792 15,862Payments to an Individual Retirement Arrangement:Arrangement:

Number of returns 2,783,721 139,929 349,224 599,185 1,042,760 531,378 39,900 81,344

Amount 11,905,552 436,682 1,118,394 2,108,032 4,380,906 2,812,195 321,822 727,519

Student loan interest deduction:

Number of returns 9,185,924 743,072 1,524,954 2,320,407 3,349,087 1,248,405 0 0

Amount 7,761,966 567,082 1,208,473 2,010,898 2,986,316 989,196 0 0

Tuition and fees deduction:

Number of returns 4,588,503 1,055,644 467,841 462,422 1,010,545 1,592,048 0 0

Amount 11,031,337 2,958,307 1,120,207 1,013,037 2,201,016 3,738,770 0 0

Health savings account deduction:


Amount 2,129,150 66,162 95,529 202,975 566,280 626,274 112,941 458,986

Moving expenses adjustment:


Amount 2,995,993 242,374 351,425 508,413 960,408 641,679 110,798 180,899

Self-employment tax deduction:


Amount 22 588 905 2 854 009 2 442 646 2 360 149 4 829 503 4 609 001 1 083 953 4 409 643Amount 22,588,905 2,854,009 2,442,646 2,360,149 4,829,503 4,609,001 1,083,953 4,409,643Self-employed health insurance deduction:


Amount 19,257,165 2,009,186 1,696,535 2,128,014 4,032,068 4,161,338 1,003,100 4,226,924Payments to a self-employed retirement (Keogh) plan:


Amount 18,499,501 213,750 173,769 382,970 1,585,170 4,555,459 1,966,053 9,622,331

Penalty on early withdrawal of savings:Penalty on early withdrawal of savings:


Amount 371,912 53,398 50,298 60,963 88,904 58,294 14,194 45,861

Alimony paid:


Amount 9,313,168 597,524 364,186 664,210 1,785,774 1,920,824 622,582 3,358,071Domestic production activitiesdeduction:


Amount 6 959 041 179 366 56 453 94 628 249 283 487 341 195 462 5 696 510Amount 6,959,041 179,366 56,453 94,628 249,283 487,341 195,462 5,696,510

Other adjustments [5]:


Amount 1,585,910 165,944 81,586 297,737 325,142 441,818 73,285 200,397



15


(1) (2) (3) (4) (5) (6) (7) (8)

$100,000under

$200,000

$200,000under

$250,000

$250,000or more



$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

Total exemptions: Number of exemptions 283,544,734 47,870,624 56,639,419 51,969,230 75,197,788 39,031,382 4,444,000 8,392,291

Amount 983,256,537 167,186,798 197,955,342 181,733,790 263,052,852 136,424,630 15,350,903 21,552,222

Total deductions: Number of returns 139,976,603 35,407,886 29,710,478 25,596,835 31,041,860 13,851,181 1,531,667 2,836,696

Amount 1,960,087,456 236,747,383 256,938,158 273,644,547 500,703,496 366,391,317 62,478,314 263,184,241

Total standard deduction:


Amount 699,190,365 207,297,272 193,084,021 143,288,305 130,977,303 22,247,057 936,173 1,360,234Amount 699,190,365 207,297,272 193,084,021 143,288,305 130,977,303 22,247,057 936,173 1,360,234

Basic standard deduction:


Amount 666,727,034 200,256,864 185,795,397 136,843,898 121,786,750 20,021,489 842,636 1,180,000

Additional standard deduction:


Amount 20,184,197 6,280,050 5,183,932 3,504,358 4,124,810 972,561 48,782 69,704Total itemized deductions (after limitation):

Number of returns 48 001 579 1 870 922 4 075 261 8 017 689 17 975 602 11 898 689 1 449 039 2 714 377Number of returns 48,001,579 1,870,922 4,075,261 8,017,689 17,975,602 11,898,689 1,449,039 2,714,377

Amount 1,260,897,091 29,450,111 63,854,137 130,356,242 369,726,193 344,144,260 61,542,141 261,824,007Itemized deductions in excess of limitation:

Number of returns 6,769,863 0 0 0 94,473 2,512,446 1,448,836 2,714,108

Amount 16,849,836 0 0 0 10,119 495,913 941,740 15,402,064Medical and dental expensesdeduction:


Amount 74 530 672 9 831 624 13 183 946 15 031 533 24 623 895 9 089 642 1 151 430 1 618 602Amount 74,530,672 9,831,624 13,183,946 15,031,533 24,623,895 9,089,642 1,151,430 1,618,602

Taxes paid deduction:


Amount 447,682,524 5,404,167 12,577,312 30,416,632 108,366,058 128,360,929 26,300,277 136,257,149

State and local income taxes: [6]


Amount 272,394,387 1,262,546 3,863,723 12,653,742 55,278,031 74,582,508 16,920,594 107,833,243

Income taxes:

Number of returns 35,520,687 632,804 2,107,741 5,448,308 14,000,225 9,851,589 1,208,495 2,271,524

Amount 254,836,486 780,801 2,654,477 10,317,153 49,870,825 69,910,292 16,113,026 105,189,909

General sales taxes:


Amount 17,557,892 481,744 1,209,239 2,336,586 5,407,206 4,672,216 807,568 2,643,333

Interest paid deduction:


Amount 481,166,292 10,962,332 25,657,875 55,374,601 161,191,194 142,828,836 23,024,892 62,126,562

Charitable contributions deduction:

Number of returns 39,223,228 1,139,605 2,732,665 5,876,730 14,804,523 10,755,712 1,347,292 2,566,701Number of returns 39,223,228 1,139,605 2,732,665 5,876,730 14,804,523 10,755,712 1,347,292 2,566,701

Amount 161,869,762 1,527,957 5,530,118 12,863,772 39,872,929 40,412,344 7,941,807 53,720,835

Taxable income: Number of returns 108,090,446 10,069,986 24,089,412 24,906,189 30,845,044 13,822,218 1,528,790 2,828,808

Amount 5,629,893,896 29,227,680 231,698,171 551,946,391 1,443,950,914 1,343,387,404 262,870,939 1,766,812,399



16


(1) (2) (3) (4) (5) (6) (7) (8)



$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

$100,000under

$200,000

$200,000under

$250,000

$250,000or more

Alternative minimum tax:

Number of returns 3,939,114 9,357 10,629 4,776 185,072 862,922 827,222 2,039,135

Amount 22,223,196 75,695 15,800 21,487 258,660 1,900,299 2,423,555 17,527,702

Income tax before credits: Number of returns 107,317,835 9,709,433 23,864,153 24,798,682 30,776,378 13,808,573 1,528,512 2,832,106

Amount 1,099,247,705 2,992,438 26,298,409 70,209,114 211,394,165 242,376,208 58,332,981 487,644,390

Total tax credits: [7] Number of returns 55,271,787 3,973,127 14,431,086 12,540,011 15,479,370 6,863,205 557,676 1,427,310

Amount 73,739,010 794,868 7,396,795 13,435,933 26,122,852 9,746,002 802,684 15,439,876Amount 73,739,010 794,868 7,396,795 13,435,933 26,122,852 9,746,002 802,684 15,439,876

Child care credit:

Number of returns 6,659,122 19,682 993,878 1,362,857 2,448,840 1,500,013 138,268 195,585

Amount 3,561,436 3,456 473,708 806,476 1,295,996 807,226 70,050 104,526

Credit for the elderly or disabled:

Number of returns 75,100 39,612 35,488 0 0 0 0 0

Amount 10,209 7,501 2,708 0 0 0 0 0

Child tax credit:

Number of returns 25,287,874 113,777 5,088,586 6,721,730 9,925,693 3,437,392 699 0

A t 30 713 081 17 892 2 525 731 7 183 995 16 199 569 4 784 670 1 223 0 Amount 30,713,081 17,892 2,525,731 7,183,995 16,199,569 4,784,670 1,223 0

Education tax credits:

Number of returns 7,829,823 493,556 1,973,241 2,208,980 2,844,232 309,814 0 0

Amount 7,732,554 146,832 1,457,729 2,290,971 3,570,180 266,843 0 0Retirement savings contributionscredit:

Number of returns 6,043,397 306,809 2,765,254 2,582,822 388,511 0 0 0

Amount 993,687 56,546 447,640 424,168 65,334 0 0 0

Adoption credit:

Number of returns 89,134 3 3,106 21,135 41,618 21,149 1,923 202

Amount 354,490 [8] 1,070 23,861 173,473 149,788 5,488 811

Residential energy credits:

Number of returns 227,620 679 18,452 44,970 93,246 49,850 6,007 14,418

Amount 219,805 257 8,383 35,000 93,214 59,444 5,573 17,933

Foreign tax credit:

Number of returns 6,680,064 183,818 388,721 719,263 1,967,745 1,877,889 381,236 1,161,393

Amount 15,121,256 7,365 41,868 94,010 481,771 986,676 531,517 12,978,049

General business credit:General business credit:


Amount 1,317,496 2,949 3,746 23,921 146,286 209,844 35,362 895,387

Prior-year minimum tax credit:


Amount 976,587 500 2,360 13,126 68,986 231,738 46,813 613,064

First-time homebuyer credit:

Number of returns 1,193,315 156,268 186,335 331,860 427,881 90,972 0 0

Amount 8,301,644 1,043,866 1,221,482 2,337,893 3,052,354 646,048 0 0

Recovery rebate credit:

Number of returns 27,665,780 7,690,830 8,042,993 5,080,619 4,643,392 ** 2,207,944 ** **

Amount 11,579,431 2,943,372 2,889,986 2,115,941 2,142,447 ** 1,487,687 ** **



17


(1) (2) (3) (4) (5) (6) (7) (8)

$100,000under

$200,000

$200,000under

$250,000

$250,000or more


$15,000under

$30,000

$30,000under

$50,000

$50,000under

$100,000

[All figures are estimates based on samples—money amounts are in thousands of dollars]

Table 1. Individual Income Tax Returns, Tax Year 2008 Preliminary Data: Selected Income and Tax Items, by Size of Adjusted Gross Income—Continued

Self-employment tax:


Amount 45,169,679 5,705,581 4,884,052 4,719,255 9,657,236 9,216,947 2,167,740 8,818,868Total earned income credit (EIC):

Number of returns 25,007,059 12,914,618 8,997,293 3,095,150 0 0 0 0

Amount 51,596,164 23,949,139 24,841,892 2,805,132 0 0 0 0EIC used to offset income tax before credits:

Number of returns 3,391,970 1,187,485 1,273,459 931,025 0 0 0 0

Amount 978,766 101,476 587,172 290,117 0 0 0 0

EIC used to offset other taxes:

Number of returns 5,550,648 3,602,508 1,484,201 463,940 0 0 0 0

Amount 5,560,408 3,262,625 2,010,579 287,205 0 0 0 0

Excess EIC, refundable portion:

Number of returns 22,053,777 11,202,884 8,595,454 2,255,437 0 0 0 0

Amount 45,056,991 20,585,039 22,244,140 2,227,812 0 0 0 0

Additional child tax credit:

Number of returns 18 300 462 4 525 344 8 641 541 3 980 753 1 129 102 23 714 8 0Number of returns 18,300,462 4,525,344 8,641,541 3,980,753 1,129,102 23,714 8 0

Amount 20,511,290 2,597,313 10,472,374 5,912,736 1,496,664 32,193 11 0Refundable prior-year minimum tax credit:


Amount 2,392,027 174,729 30,136 13,553 281,928 679,157 360,699 851,824

Total income tax: Number of returns 90,718,339 7,317,122 16,042,401 20,028,906 29,226,649 13,754,357 1,524,455 2,824,448

Amount 1,025,509,017 2,197,569 18,901,617 56,773,180 185,271,314 232,630,205 57,530,297 472,204,834

T t l t li bilitTotal tax liability: Number of returns 94,721,187 9,825,138 16,758,188 20,525,546 29,486,358 13,773,561 1,525,814 2,826,584

Amount 1,070,367,059 4,684,312 21,762,441 61,269,715 196,391,903 243,514,145 60,014,269 482,730,275** Data combined to prevent disclosure of specific taxpayer information.[1] Includes returns with adjusted gross deficit.[2] Included in data for Forms 1040, 1040A, and 1040EZ.[3] Not included in adjusted gross income.[4] Includes capital gain distributions reported on Form 1040 and Schedule D.[5] Other adjustments does not include the foreign housing deduction or the medical savings account deduction.[6] "State and local income taxes" is the total of both income taxes and general sales taxes.[7] Includes EIC used to offset income tax before credits, shown separately later in this table.[8] L th $500[8] Less than $500.NOTE: Detail may not add to totals because of rounding.

18

T axpayers filed 143.0 million returns for Tax Year 2007. This number does not include returns filed by individuals only to receive the economic stimulus payment and who had no other reason to file. Of these 143.0 million returns, 96.3 million (or 67.3 percent) were classified as taxable returns. A taxable return is a return that has total income tax greater than $0. This represents an increase of 3.8 percent in the number of taxable returns from 2006. Adjusted gross income (AGI) on these taxable returns rose 8.5 percent to $8,072 billion for 2007, while total income tax rose 9.0 percent to $1,116 billion. The average tax rate for taxable returns was unchanged, at 13.8 percent.

The top 1 percent of taxpayers, those with an AGI of at least $410,096, accounted for 22.8 percent of AGI for 2007. This represents an increase in income share of 0.8 percentage points from the previ-ous year, when the cutoff for this group was for this group was $388,806. These taxpayers accounted for 40.4 percent of the total income tax reported, an increase from 39.9 percent in 2006. The top 5 percent of taxpayers accounted for 37.4 percent of AGI and 60.6 percent of total income tax. To be included in the top 5 percent, a taxpayer must have reported an AGI of at least $160,041, whereas, in 2006, the cutoff for this group was $153,542.

This article discusses the individual income tax rates and tax shares and the computation of “total income tax” for 2007. To put this discussion into perspective, the article provides explanations of selected terms used in the article and describes the income tax structure, certain tax law changes, income and tax concepts (the 1979 Income Concept, modified taxable income, and marginal tax rates), the computation of alternative minimum taxable income, and data sources and limitations.

Income Tax RatesDiscussions of income tax rates generally center on measuring two distinct tax rates: average tax

Individual Income Tax Rates and Shares, 2007

rates and marginal tax rates. Average tax rates are calculated by dividing some measure of tax by some measure of income. For the statistics in this article, the average tax rate is total income tax (see Explanation of Selected Terms) divided by AGI reported on returns showing some income tax liability.

Measures of marginal tax rates, on the other hand, focus on determining the tax rate imposed on the last (or next) dollar of income received by a taxpayer. For this article, the marginal tax rate is the statutory rate at which the last dollar of taxable income is taxed. (See Income and Tax Concepts for a more detailed explanation of marginal tax rates.) The following sections describe the measurement of the average and marginal tax rates in more detail, and discuss the statistics based on these rates for 2007.

Average Tax RatesFigure A presents statistics for 1986 through 2007 on income (based on each year’s definition of AGI and on the common 1979 Income Concept) and taxes reported. (See Income and Tax Concepts for a more detailed explanation of the 1979 Income Concept.) These tax years can be partitioned into seven distinct periods:

(1) Tax Year 1986 was the last year under the Economic Recovery Tax Act of 1981 (ERTA81). The tax bracket boundaries, personal exemptions, and standard deductions were indexed for inflation, and the maximum tax rate was 50 percent.

(2) Tax Year 1987 was the first year under the Tax Reform Act of 1986 (TRA86). For 1987, a 1-year, transitional, five-rate tax bracket structure was established with a partial phase-in of new provisions that broadened the definition of AGI. The maximum tax rate was 38.5 percent.

(3) During Tax Years 1988 through 1990, there was effectively a three-rate tax bracket struc-ture.1 The phase-in of the provisions of TRA86 continued with a maximum tax rate of 33 percent.

by Adrian Dungan and Kyle Mudry

Adrian Dungan and Kyle Mudry are economists with the Individual Returns Analysis Section. This article was prepared under the direction of Jeff Hartzok, Chief.

1 For Tax Years 1988 through 1990, the tax rate schedules provided only two basic rates: 15 percent and 28 percent. However, taxable income over certain levels was subject to a 33-percent tax rate to phase out the benefit of the 15-percent tax bracket (as compared to the 28-percent rate) and the deduction for personal exemptions. At the taxable income level where these benefits were completely phased out, the tax rate returned to 28 percent.

19

Individual Income Tax Rates and Shares, 2007Statistics of Income Bulletin | Winter 2010

Figure A

[Money amounts are in billions of dollars, except where indicated]

Taxable returnsAverage per return (whole dollars) [3]

Current dollars Constant dollars [4]

Adjusted Gross Income, Total Income Tax, Average Tax Rate, and Average Total Income Tax,Tax Years 1986–2007

As apercentage

of totalreturns [1]

Numberof

returns

Total numberof returns

Adjustedgross

income(less deficit)

Taxyear

Totalincome

tax

Averagetax rate

(percent)[2,3]

Adjustedgross income(less deficit)

Totalincome

tax

Adjustedgross income(less deficit)

Totalincome

tax

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

1986 103,045,170 83,967,413 81.5 2,440 367 15.1 29,062 4,374 26,516 3,991 1987 106,996,270 86,723,796 81.1 2,701 369 13.7 31,142 4,257 27,414 3,747 1988 109,708,280 87,135,332 79.4 2,990 413 13.8 34,313 4,738 29,005 4,005 1989 112,135,673 89,178,355 79.5 3,158 433 13.7 35,415 4,855 28,560 3,915 1990 113,717,138 89,862,434 79.0 3,299 447 13.6 36,711 4,976 28,088 3,807 1991 114,730,123 88,733,587 77.3 3,337 448 13.4 37,603 5,054 27,609 3,711 1992 113,604,503 86,731,946 76.3 3,484 476 13.7 40,168 5,491 28,630 3,914 1993 114,601,819 86,435,367 75.4 3,564 503 14.1 41,233 5,817 28,535 4,026 1994 115,943,131 87,619,446 75.6 3,737 535 14.3 42,646 6,104 28,776 4,119

Using each tax year's adjusted gross income

1994 115,943,131 87,619,446 75.6 3,737 535 14.3 42,646 6,104 28,776 4,1191995 118,218,327 89,252,989 75.5 4,008 588 14.7 44,901 6,593 29,463 4,326 1996 120,351,208 90,929,350 75.6 4,342 658 15.2 47,750 7,239 30,433 4,614 1997 122,421,991 93,471,200 76.4 4,765 731 15.3 50,980 7,824 31,763 4,875 1998 124,770,662 93,047,898 74.6 5,160 789 15.3 55,458 8,475 33,836 5,171 1999 127,075,145 94,546,080 74.4 5,581 877 15.7 59,028 9,280 35,431 5,570 2000 129,373,500 96,817,603 74.8 6,083 981 16.1 62,832 10,129 36,488 5,882 2001 130,255,237 94,763,530 72.8 5,847 888 15.2 61,702 9,370 34,840 5,291 2002 130,076,443 90,963,896 69.9 5,641 797 14.1 62,015 8,762 34,472 4,870 2003 130,423,626 88,921,904 68.2 5,747 748 13.0 64,625 8,412 35,122 4,572 2004 132,226,042 89,101,934 67.4 6,266 832 13.3 70,318 9,337 37,225 4,943 2005 134,372,678 90,593,081 67.4 6,857 935 13.6 75,687 10,319 38,754 5,284 , , , , , , , , ,2006 *138,394,754 92,740,927 67.0 7,439 1,024 13.8 80,218 11,041 39,791 5,477 2007 **142,978,806 96,269,751 67.3 8,072 ***1,116 13.8 83,851 11,588 40,449 5,590

1986 103,045,170 83,967,413 81.5 2,703 367 13.6 32,194 4,374 29,374 3,991 1987 106,996,270 86,723,796 81.1 2,736 369 13.5 31,551 4,257 27,774 3,747 1988 109,708,280 87,135,332 79.4 3,011 413 13.7 34,556 4,738 29,210 4,005 1989 112,135,673 89,178,355 79.5 3,188 433 13.6 35,752 4,855 28,832 3,915 1990 113,717,138 89,862,434 79.0 3,335 447 13.4 37,108 4,976 28,392 3,807 1991 114,730,123 88,733,587 77.3 3,387 448 13.2 38,169 5,054 28,024 3,711 1992 113,604,503 86,731,946 76.3 3,553 476 13.4 40,964 5,491 29,198 3,914 1993 114,601,819 86,435,367 75.4 3,625 503 13.9 41,938 5,817 29,023 4,026

Using 1979 Income Concept [5]

1993 114,601,819 86,435,367 75.4 3,625 503 13.9 41,938 5,817 29,023 4,0261994 115,943,131 87,619,446 75.6 3,796 535 14.1 43,322 6,104 29,232 4,119 1995 118,218,327 89,252,989 75.5 4,075 588 14.4 45,655 6,593 29,957 4,326 1996 120,351,208 90,929,350 75.6 4,418 658 14.9 48,582 7,239 30,964 4,614 1997 122,421,991 93,471,200 76.4 4,849 731 15.1 51,875 7,824 32,321 4,875 1998 124,770,662 93,047,898 74.6 5,299 789 14.9 56,947 8,475 34,745 5,171 1999 127,075,145 94,546,080 74.4 5,736 877 15.3 60,666 9,280 36,414 5,570 2000 129,373,500 96,817,603 74.8 6,294 981 15.6 65,012 10,129 37,754 5,882 2001 130,255,237 94,763,530 72.8 5,943 888 14.9 62,716 9,370 35,413 5,291 2002 130,076,443 90,963,896 69.9 5,758 797 13.8 63,297 8,762 35,184 4,870 2003 130,423,626 88,921,904 68.2 5,849 748 12.8 65,777 8,412 35,749 4,572 2004 132,226,042 89,101,934 67.4 6,399 832 13.0 71,817 9,337 38,019 4,943 , , , , , , , , ,2005 134,372,678 90,593,081 67.4 7,016 935 13.3 77,448 10,319 39,656 5,284 2006 *138,394,754 92,740,927 67.0 7,640 1,024 13.4 82,379 11,041 40,863 5,477 2007 **142,978,806 96,269,751 67.3 8,282 ***1,116 13.5 86,028 11,588 41,499 5,590 * Includes 742,859 Form 1040 EZ–T returns.** The total number of returns does not include the returns filed by individuals to only receive the economic stimulus payment and who had no other reason to file.*** Revised from previously published value of 1,115.6[1] Number of taxable returns (column 2) divided by total number of returns (column 1).[2] Average tax rate is "total income tax" (column 5) divided by "adjusted gross income less deficit (AGI)" (column 4).[3] The average adjusted gross income (less deficit), average total income tax, and average tax rate were calculated from unrounded data.[4] Constant dollars were calculated using the U.S. Bureau of Labor Statistics' consumer price index for urban consumers (CPI–U, 1982–84=100). For 2007, the CPI–U=207.3. [5] These statistics are based on adjusted gross income less deficit (AGI) recomputed to reflect the 1979 Income Concept, thus enabling more valid comparisons to be made of the

C f f G f f f Saverage tax rates among years. Changes in the definition of AGI among years render direct comparison of the unadjusted figures misleading. For additional information, see Statistics of Income-Individual Income Tax Returns, for 1986–2007. See Figure G for components of the 1979 Income Concept.

20


(4) Tax Years 1991 and 1992 brought a three-rate tax bracket structure (with a maximum tax rate of 31 percent), a limitation on some itemized deduc-tions, and a phaseout of personal exemptions for some upper income taxpayers.

(5) Tax Years 1993 through 1996 had a five-rate tax bracket structure (with a maximum statutory tax rate of 39.6 percent), a limitation on some itemized deductions, and a phaseout of personal exemptions for some upper income taxpayers.

(6) Tax Years 1997 through 2000 were subject to the Taxpayer Relief Act of 1997 which added three new capital gain tax rates to the previ-ous rate structure to form a new eight-rate tax bracket structure (with maximum statutory tax rate of 39.6 percent). See Income and Tax Concepts for a more detailed description of the capital gain rates.

(7) Tax Years 2001 through 2007 were affected by two new laws, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconcilia-tion Act of 2003 (JGTRRA). EGTRRA included a new 10-percent tax rate bracket, as well as reductions in tax rates for brackets higher than 15 percent of one-half percentage point for 2001 and 1 percentage point for 2002. It also included increases in the child tax credit and an increase in alternative minimum tax exemptions. Tax Year 2003, under JGTRRA, saw additional rate reduc-tions in ordinary marginal tax rates higher than the 15-percent rate, as well as expansions to particular income thresholds in the rates from 15 percent and below. Also, the rate for most long-term capital gains was reduced from 20 percent to 15 percent. Further, qualified dividends were taxed at this same 15-percent rate. These changes are detailed in the previously published article, “Individual Income Tax Rates and Shares, 2003” in Appendix C (under Tax Rate Reduction). Beginning in 2004, the Working Families Tax Relief Act increased the additional child tax credit refundability rate from 10 percent to 15 percent.

About 96.3 million, or 67.3 percent, of the 143.0 million individual returns filed for 2007 were classified as taxable returns. This was a 3.8-percent

increase in the number of taxable returns from 2006. Total AGI reported on taxable returns increased 8.5 percent to $8,072 billion. Total AGI on taxable returns also rose using the 1979 Income Concept, increasing 8.4 percent to $8,282 billion for 2007. Total income tax rose by over $92 billion (9.0 percent) to $1,116 billion for 2007. Average AGI for taxable returns rose to $83,851 for 2007, a 4.5-percent increase from 2006. Average income tax also rose for 2007 by 5.0 percent to $11,588.

In order to analyze the average tax rate over time, it is necessary to use a more consistent measure of income than AGI because some tax law changes resulted in the definition of AGI changing from year to year. The 1979 Income Concept controls for much of this variation in tax law, and its use provides a more consistent estimate of the average tax rate across years. Under the 1979 Concept, the average tax rate for 2007 rose to 13.5 percent from 13.4 percent for the previous year.

As shown in Figure B, the average tax rate on all taxable returns as a percentage of AGI was 13.8 percent for 2007. The average tax rate for the AGI-size classes ranged from 2.7 percent for the $1 under $10,000 AGI-size class to 23.4 percent for the $500,000 under $1,000,000 AGI-size class.

The average tax rate of 13.8 percent for 2007 for all income classes combined was unchanged from 2006. The average tax rate for taxable returns in every AGI class fell. The overall average rate remained the same despite this decline in each AGI class because individuals tended to move into higher income classes which, in turn, faced higher tax rates. For example, in 2007, the number of taxable returns in every positive AGI class between $1 and under $30,000 decreased, while all others increased, especially at the higher income levels. For instance, the number of taxable returns report-ing an AGI of $100,000 to $200,0000, $200,000 to $500,000, $500,000 to $1 million, and $1 million or more all recorded increases of more than 10 percent from 2006.

Marginal Tax Rate ClassificationsA return’s marginal tax rate is the highest statu-tory tax rate bracket applicable to that tax return. Marginal tax rate statistics are presented in Figure C and Table 1. These statistics are based on individual income tax returns showing a positive taxable

21


Figure B

Taxable Returns: Number of Returns, Adjusted Gross Income, and Total Income Tax,Taxable Returns: Number of Returns, Adjusted Gross Income, and Total Income Tax,by Size of Adjusted Gross Income Tax Years 2006 and 2007by Size of Adjusted Gross Income, Tax Years 2006 and 2007y j[Number of returns is in thousands—money amounts are in millions of dollars]


[ y ]


$1 $10,000 $20,000 $30,000Tax year item $1 $10,000 $20,000 $30,000Total Under under under under under

Tax year, itemTotal Under under under under under

$1 [1] $10 000 $20 000 $30 000 $50 000$1 [1] $10,000 $20,000 $30,000 $50,000(1) (2) (3) (4) (5) (6)( ) ( ) (3) ( ) (5) (6)

Tax Year 2007:Tax Year 2007:Number of taxable returns 96 273 6 4 209 11 464 11 593 21 213 Number of taxable returns 96,273 6 4,209 11,464 11,593 21,213Adjusted gross income (less deficit) 8 072 294 5 805 27 596 172 061 289 357 837 794 Adjusted gross income (less deficit) 8,072,294 -5,805 27,596 172,061 289,357 837,794T t l i t *1 115 760 99 733 6 825 17 599 61 368 Total income tax *1,115,760 99 733 6,825 17,599 61,368

Average tax rate (percent) [2] 13.8 [3] 2.7 4.0 6.1 7.3 g (p ) [ ] [ ]Tax Year 2006:Tax Year 2006: Number of taxable returns 92,741 6 4,225 11,496 11,630 20,486 Number of taxable returns 92,741 6 4,225 11,496 11,630 20,486

Adjusted gross income (less deficit) 7 439 473 -5 988 27 753 172 504 290 722 808 020 Adjusted gross income (less deficit) 7,439,473 -5,988 27,753 172,504 290,722 808,020Total income tax 1 023 920 181 743 7 132 17 898 59 803 Total income tax 1,023,920 181 743 7,132 17,898 59,803A erage ta rate (percent) [2] 13 8 [3] 2 7 4 1 6 2 7 4 Average tax rate (percent) [2] 13.8 [3] 2.7 4.1 6.2 7.4

Ch iChange in:g Number of taxable returns 3,529 -1 -16 -32 -37 727 Number of taxable returns 3,529 1 16 32 37 727 Percent 3.8 0.1 -0.4 -0.3 -0.3 3.6 Percent 3.8 0.1 0.4 0.3 0.3 3.6

Adjusted gross income (less deficit) 632,821 182 -157 -443 -1,365 29,774 Adjusted gross income (less deficit) 632,821 182 -157 -443 -1,365 29,774Percent 8 5 3 0 -0 6 -0 3 -0 5 3 7 Percent 8.5 3.0 -0.6 -0.3 -0.5 3.7

Total income tax 91 682 84 10 308 299 1 565 Total income tax 91,682 -84 -10 -308 -299 1,565P t 9 0 46 2 1 3 4 3 1 7 2 6 Percent 9.0 -46.2 -1.3 -4.3 -1.7 2.6

Average tax rate:g

Percentage point change 0 1 [4] [5] -0 2 -0 1 -0 1 Percentage point change 0.1 [4] [5] -0.2 -0.1 -0.1


$50 000 $100 000 $200 000 $500 000 $1 000 000

S e o adjusted g oss co e

$50,000 $100,000 $200,000 $500,000 $1,000,000d d d d

Tax year, itemunder under under under or

a yea , e

$100,000 $200,000 $500,000 $1,000,000 more$100,000 $200,000 $500,000 $1,000,000 more(7) (8) (9) (10) (11)(7) (8) (9) (10) (11)

T Y 2007Tax Year 2007:N b f t bl t 29,877 13,386 3,484 649 391 Number of taxable returns , , ,

2,128,157 1,783,982 1,002,131 440,314 1,396,706 Adjusted gross income (less deficit) 2,128,157 1,783,982 1,002,131 440,314 1,396,706190,716 228,755 196,469 103,163 310,033 Total income tax

j g ( )190,716 228,755 196,469 103,163 310,033

9 0 12 8 19 6 23 4 22 2 Total income tax

Average tax rate (percent) [2] 9.0 12.8 19.6 23.4 22.2 Average tax rate (percent) [2]Tax Year 2006:

28 799 12 041 3 115 588 353Tax Year 2006:

Number of taxable returns 28,799 12,041 3,115 588 3532 0 8 1 1 600 06 893 33 398 1 209 023

Number of taxable returnsAdj t d i (l d fi it) 2,044,851 1,600,506 893,337 398,745 1,209,023 Adjusted gross income (less deficit)

184,463 209,381 177,041 94,214 273,064 Total income tax 184,463 209,381 177,041 94,214 273,0649.0 13.1 19.8 23.6 22.6 Average tax rate (percent) [2] 9.0 13.1 19.8 23.6 22.6 Average tax rate (percent) [2]

Change in:1 077 1 342 368 61 38

Change in:Number of taxable returns 1,077 1,342 368 61 38

3 7 11 1 11 8 10 4 10 7 Number of taxable returns

Percent 3.7 11.1 11.8 10.4 10.783 307 183 476 108 794 41 569 187 683

PercentAdj t d i (l d fi it) 83,307 183,476 108,794 41,569 187,683 Adjusted gross income (less deficit)

4.1 11.5 12.2 10.4 15.5 Percent6,252 19,306 19,340 8,949 36,970 Total income tax 6,252 19,306 19,340 8,949 36,970

3.4 9.2 10.9 9.5 13.5 Total income tax Percent 3.4 9.2 10.9 9.5 13.5 Percent

Average tax rate:0 1 0 3 0 2 0 2 0 4

Average tax rate:Percentage point change -0.1 -0.3 -0.2 -0.2 -0.4 Percentage point change

* Revised from previously published value of 1,115.6.p y p[1] Includes returns with adjusted gross deficit. Tax in these returns represents some combination of alternative minimum tax, Form 4972 tax on lump