The trend in recent increases in numbers of federal individual income tax returns reporting incomes of $200,000 or more has reportedly hit a speed bump, according the a recently released IRS survey. The IRS’s Spring 2011 Statistics of Income (SOI) Bulletin reports a 3.5 percent drop in the number of individual returns reflecting adjusted gross income of $200,000 or more for tax year 2008, when the economic downturn officially started and the year for which the most recent full-year statistics are available. This trend comes after several years of increases in the number of returns filed by higher income individuals. The IRS received 4.3 million returns from taxpayers reporting adjusted gross income (AGI) of $200,000 or more for tax year 2008. In contrast, the IRS received more than 4.5 million returns from taxpayers reporting AGI of $200,000 or more for tax year 2007.
Most pay higher taxes
IRS statistics reveal that most higher-income taxpayers do not engage in aggressive tax avoidance but, as a group, accept the tax that ordinarily must be paid on their income. Three facts about the information the IRS extrapolated from returns filed by higher income individuals stand out:
- Only a small percentage (0.4 percent) of higher-income individuals reported no U.S. income tax liability (of these returns, 0.2 percent reported no worldwide income tax liability).
- Another relatively small group of higher-income individuals (0.9 percent) was able to offset a substantial fraction of income before being subject to taxation.
- Overall, most higher-income individuals were subject to tax on their income.
Typical income profile
Among individuals whose returns reflected incomes of $200,000 or more for tax year 2008, the largest source of income was salaries and wages at $1.2 trillion. More than 3.8 million returns from higher-income taxpayers reported income from salaries and wages. Other significant sources of income included partnership and S corp income ($446 billion reported by 1.3 million taxpayers), income from sales of capital assets ($417 billion reported by 1.3 million taxpayers); dividends ($125 billion, reported by 3.2 million taxpayers); and royalties ($17 billion reported by over 300,000 taxpayers).
Typical deductions and credits
The most common deduction for returns reflecting incomes of $200,000 or more was the deduction for taxes paid. More than 4.1 million returns from higher income taxpayers reported deductions for taxes paid. The deduction for interest paid was the second-most common deduction among higher income taxpayers with more than 3.5 million returns reporting deductions for interest paid (of which 3.3 million returns reflected home mortgage interest). Over 3.9 million returns from higher income taxpayers reflected deductions for charitable contributions.
Among the various tax credits, the credit for foreign taxes paid was the most common among returns filed by higher income taxpayers. More than 1.5 million returns reflected the foreign tax credit. Just over 300,000 returns reported the child tax credit.