New Internal Revenue Service data for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
year 2022 shows the US federal income tax system continues to be progressive as high-income taxpayers pay the highest average income tax rates. Average tax rates for all income groups remained lower in 2022, five years after the Tax Cuts and Jobs Act (TCJA), than they were in 2017 prior to the reform.
- In 2022, taxpayers filed 153.8 million tax returns, reported earning nearly $14.8 trillion in adjusted gross income(AGI), and paid $2.1 trillion in individual income taxes.
- The average income tax rate in 2022 was 14.5 percent. The top 1 percent of taxpayers paid a 23.1 percent average rate, six times higher than the 3.7 percent average rate paid by the bottom half of taxpayers.
- The top 1 percent’s income share fell from 26.3 percent in 2021 to 22.4 percent in 2022, and its share of federal income taxes paid fell from 45.8 percent to 40.4 percent.
- The top 50 percent of all taxpayers paid 97 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 3 percent.
Reported Income Rose and Taxes Paid Fell in Tax Year 2022
Taxpayers reported nearly $14.8 trillion in AGI on 153.8 million tax returns in 2022, an increase of $30 billion in AGI and 211,000 returns compared to 2021. Total income taxes paid fell by $57 billion to $2.1 trillion, a 3 percent decrease from 2021. The average individual income tax rate inched down from 14.9 percent in 2021 to 14.5 percent in 2022.
Because the Office of Management and Budget (OMB) classifies the refundable part of tax credits as spending, the IRS does not include it in tax share figures. The result overstates the tax burden of the bottom half of taxpayers.
High-Income Taxpayers Paid the Highest Average Income Tax Rates
The bottom half of taxpayers, or taxpayers making under $50,399, faced an average income tax rate of 3.7 percent. As household income increases, average income tax rates rise. For example, taxpayers with AGI between the 10th and 5th percentiles ($178,611 and $261,591) paid an average income tax rate of 14.3 percent—almost five times the rate paid by taxpayers in the bottom half.
The top 1 percent of taxpayers (AGI of $663,164 and above) paid the highest average income tax rate of 26.1 percent—seven times the rate faced by the bottom half of taxpayers.
High-Income Taxpayers Paid the Majority of Federal Income Taxes
In 2022, the bottom half of taxpayers earned 11.5 percent of total AGI and paid 3 percent of all federal individual income taxes. The top 1 percent earned 22.4 percent of total AGI and paid 40.4 percent of all federal income taxes.
In all, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid $864 billion in income taxes while the bottom 90 percent paid $599 billion.
The share of income taxes paid by the top 1 percent increased from 33.2 percent in 2001 to 40.4 percent in 2022. While the share has generally been increasing over the period, 2020 and 2021 are outlier years largely because of significant changes in income and tax policy during the coronavirus pandemic. Over the same period, the share of income taxes paid by the bottom 50 percent of taxpayers fell from 4.9 percent in 2001 to 3 percent in 2022.
The share of adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.”
reported by the top 1 percent grew from 17.4 percent in 2001 to 22.4 percent in 2021. The AGI share of the top 1 percent tends to fluctuate over the business cycle, rising and falling to a greater extent than income reported by other groups. This was particularly the case in 2021 as capital gains realizations increased sharply to reach their highest level in 40 years. The share of AGI reported by the bottom 50 percent of taxpayers fell from 14.4 percent in 2001 to 11.5 percent in 2022 (closer to its pre-pandemic level).
The Tax Cuts and Jobs Act Reduced Average Tax Rates Across Income Groups
The 2022 tax year was the fifth since the Tax Cuts and Jobs Act (TCJA) made many significant, but temporary, changes to the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.
code to lower tax rates, widen brackets, increase the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.
and child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.
, and more. The changes lowered tax burdens, on average, for taxpayers across all income levels. Tax years 2020 and 2021 also show the effects of pandemic-related relief administered through the tax code. Average tax rates were lower in 2022 than in 2017 across all income groups.
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Appendix
For data prior to 2001, all tax returns that have a positive AGI are included, even those that do not have a positive income tax liability. For data from 2001 forward, returns with negative AGI are also included, but dependent returns are excluded. The unit of analysis is the tax return. In the figures prior to 2001, some dependent returns are included. Under other units of analysis (like the US Treasury Department’s Family Economic Unit), these returns would likely be paired with parents’ returns.
Income tax after credits (the measure of “income taxes paid” above) does not account for the refundable portion of tax credits such as the EITC. If the refundable portion were included, the tax share of the top income groups would be higher and the average tax rate of bottom income groups would be lower. The refundable portion is classified as a spending program by the Office of Management and Budget (OMB) and therefore is not included by the IRS in these figures.
The only tax analyzed here is the federal individual income tax, which is responsible for more than 25 percent of the nation’s taxes paid (at all levels of government). Federal income taxes are much more progressive than federal payroll taxes, which are responsible for about 20 percent of all taxes paid (at all levels of government), and are more progressive than most state and local taxes.
AGI is a fairly narrow income concept and does not include income items like government transfers (except for the portion of Social Security benefits that is taxed), the value of employer-provided health insurance, underreported or unreported income (most notably that of sole proprietors), income derived from municipal bond interest, net imputed rental income, and others.
These figures represent the legal incidence of the income tax. Most distributional tables (such as those from the Congressional Budget Office [CBO], the Tax Policy Center, Citizens for Tax Justice, the Treasury Department, and the Joint Committee on Taxation [JCT]) assume that the entire economic incidence of personal income taxes falls on the income earner.
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