Federal Income Taxes by Income Bracket

Thursday, January 12, 2017
federal income taxes by income bracket
Thinkstock/seb_ra

More than 60 percent of federal income tax returns come from people making less than $50,000 per year. Yet this group contributes about 7 percent of the individual income tax revenue collected. These are among the many details covered in a recent Economic Synopses essay examining federal tax collection facts.

Senior Economist Fernando Martin began by providing a snapshot of federal revenues collected for fiscal year 2016. The table below shows the breakdown.

federal tax revenue

Individual Income Taxes

Martin focused the remainder of his essay inspecting individual income taxes in more detail, as they make up nearly half of federal revenue. The table below breaks these taxes down by adjusted gross income brackets and four categories. (Note that the data are for fiscal year 2014, the most recent year with data by income levels.)

federal income taxes by bracket

Martin commented on some of the differences between the lowest and highest income categories. He noted that tax rates increase up the income ladder due to the progressive nature of the U.S. income tax code.

For example, he noted that those earning less than $50,000 annually accounted for nearly two-thirds of all tax returns, but contributed only 7 percent of total revenue from individual income taxes. He wrote: “Around half of the filers in this group report zero taxable income; for those with taxable income, the average income tax rate is 12 percent.”

On the other end, filers making at least $1 million annually accounted for 0.3 percent of all returns, but contributed 27 percent of total revenue from individual income taxes. Martin noted: “Their average tax rate—31 percent—is almost triple that of filers in the lowest income bracket.”

He also noted that a group’s contribution to total revenue also depends on taxable income. For example, the group earning between $100,000 and $199,999 annually has an average tax rate of 17 percent but contribute 22 percent of revenue. This is the second-highest total amount by the groups examined, behind those earning at least $1 million.

Martin wrote: “The reason is that there are many more filers in the former group (12 percent versus 0.3 percent), who together generate about one-quarter of total taxable income (versus 17 percent for the highest earners).”

Implications of Tax Reform

Martin discussed how this breakdown by income can illustrate potential effects of tax reform. He gave an example of trying to close the deficit by raising the tax rates on the highest earners (those making $500,000 or more).

The deficit estimate for 2016 is $590 billion. The income tax revenue generated by the highest earners is roughly equal to the deficit, so their tax rate would have to double from around 30 percent to around 60 percent to generate enough revenue to cover the deficit.

Martin wrote: “A tax increase of this magnitude, however, might decrease the incentives for high-income earners to work as hard and encourage them to seek new ways to shield their income. Hence, in practice, the tax rate may need to be raised further and even then might not be enough to raise all the additional revenue.”

Additional Resources

Posted In Financial  |  Tagged fernando martintaxesfederal taxesincome tax
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.

Subscribe to
On the Economy

Get notified when new content is available on our On the Economy blog.

Subscribe

About the Blog

The St. Louis Fed On the Economy blog features relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts.


Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Contact Us

For media-related questions, email mediainquiries@stls.frb.org. For all other blog-related questions or comments, email on-the-economy@stls.frb.org.

Categories