1State and local revenue excludes transfers from the federal government. See separate schedule and discussion of intergovernmental transfers at Note 23 – Intergovernmental transfers (Part II, Item 8 within this annual report).
2Key changes are highlighted in gray in the table above and are discussed in the sections below.
2017 to 2018 | Federal individual income tax revenue
The federal individual income tax revenue increase of $96 billion can be attributed $98 billion* to higher taxable income, offset in part by a decrease of $2 billion* attributed to changes in in average tax rates.
The $98 billion increase in revenue attributable to higher taxable income reflected a $671 billion or 6% increase in aggregate AGI, as well as a $198 billion or 7% decrease in aggregate deductions and exemptions. Following are the income components of AGI shown by AGI group (cohort).
1 All Other includes interest, dividends, state income tax refunds, business or profession net income (loss), taxable individual retirement arrangement distributions, taxable pensions and annuities, taxable social security benefits, and other income (loss), less: self-employed SEP, self-employed health insurance, retirement account deductions, student loan interest deductions, tuition and fees deduction, domestic production activities deduction, and other deductions.
AGI by cohort
AGI increased for nearly all income cohorts, most significantly for the cohorts with AGI above $100,000, a group which saw its aggregate AGI increase over $599 billion or 9% for the year. The cohort with the largest dollar and rate increases in AGI was the one with AGI between $200,001 and $500,000, at an increase of $196 billion or 11%, driven primarily by higher wages and salaries but with increases across all sources of income. The increases in AGI for these cohorts were offset in part by a $1 billion or 0% decrease in AGI for the cohort where AGI is between $1 and $50,000, driven primarily by decreased All Other income.
AGI by income type
Over half of the overall $671 billion increase in AGI was driven by higher wages and salaries, which increased $337 billion or 5%. All AGI cohorts saw wage and salary growth. The largest dollar amount of growth, at an increase of $110 billion or 9%, was for the cohort with AGI between $200,001 and $500,000. The highest rate of wage and salary growth, at an increase of 10% or $2 billion, was for the cohort with AGI less than $1.
Net capital gains income increased $109 billion or 14%, comprising 16% of the overall increase in AGI. All AGI cohorts saw increases in net capital gains income. The largest dollar amount of growth, at an aggregate increase of $65 billion or 13%, was for the cohort with AGI over $1 million. The highest rate of growth, at 19% or $19 billion, was for the cohort with AGI between $200,001 and $500,000. The average daily closing price of the S&P 500 between these federal fiscal years (October 1 to September 30) increased 16%, which may have contributed to increases in capital gains.
Partnership and S-Corporation income increased $16 billion or 2%, comprising 2% of the overall increase in AGI. Experiences varied among cohorts. The largest dollar amount and highest rate of growth, at $9 billion or 7%, respectively, was for the cohort with AGI between $200,001 and $500,000.
Income within the “All Other” category shown in the table above increased $209 billion or 11%, comprising 31% of the overall increase in AGI. This increase was driven primarily by: a $96 billion or 7% increase in taxable retirement income, comprising taxable Individual Retirement Account (IRA), pension, annuity, and Social Security distributions; a $38 billion or 14% increase in dividend income; and a $19 billion or 18% increase in taxable interest income.
Within the increase in taxable retirement income, the largest dollar amount of growth, at an increase of $48 billion or 11% was for the cohort with AGI between $100,001 and $200,000. The highest rate of growth, at 26% or $7 billion, was for the cohort with AGI between $500,001 and $1,000,000. During this period, the population of those aged 65 years and older, the cohort most likely to be taking retirement income distributions, increased 3%.
Within the increase in dividend income, the largest dollar amount of increase and highest of growth, at $20 billion or 20%, was for the cohort with AGI greater than $1 million.
Within the increase in taxable interest income, the largest amount of growth of $10 billion or 24%, was for the cohort with AGI greater than $1 million, while the highest rate of growth at 25% or $2 billion, was for the cohort with AGI between $500,001 and $1 million.
AGI mobility – numbers of income tax returns filed by income cohort
((In thousands, except percentages)
Less than $1
Over $1 million
The number of income tax returns filed for the lowest income cohorts, those with AGI of $50,000 or less, decreased by 1.5 million tax returns in aggregate, while the number of tax returns filed increased for all other AGI cohorts. The group with the highest increase in number of returns filed was the cohort with AGI between $100,001 and $200,000, at an increase of 1.2 million returns, while the groups with the highest percentage increase in the number of returns filed were the cohorts with AGI between $200,001 and $500,000 and with AGI greater than $1 million, both at an increase of 11%.
1 Limitations represents the effect of limiting taxable income to no less than zero. If the combination of deductions and exemptions exceeds AGI, the excess deductions and exemptions are disallowed.
The $198 billion decrease in deductions and exemptions from 2017 to 2018 reflected a $389 billion shift in total deductions and exemptions from larger itemized deductions and exemptions and into smaller standard deductions, presumably largely due to tax law changes from the TCJA. Unfortunately, we are unable to separate the impact of changes in behavior due to the TCJA. The shift from itemized deductions and exemptions to standard deductions occurred across all AGI cohorts. The cohort with the largest dollar change, at a decrease of $100 billion or 15% in deductions and exemptions (before limitations), is the cohort with AGI between $100,001 and $200,000. The cohort with the largest percent change, at a decrease of 75% or $10 billion, is the cohort with AGI less than $1. These decreases in deductions and exemptions were offset in part by lower disallowances due to limitations, which were also seen across all AGI cohorts.
Tax rate changes
There were several key statutory individual income tax rate changes during this period due to the Tax Cuts and Jobs Act (TCJA). The TCJA reduced individual income tax rates overall, effective January 1, 2018, including:
decreasing the top individual income tax rate from 39.6% to 37%;
eliminating the personal exemptions, and capping the state and local tax deduction at $10,000, while nearly doubling the amount of the standard deduction;
increasing the child tax credit; and
providing a 20% deduction of qualified business income and certain dividends for individuals.
2017 to 2018 | State and local individual income tax revenue
The $41 billion state and local individual income tax revenue increase can be attributed $23 billion** to higher taxable income and $18 billion** to changes in average tax rates.
The $23 billion increase attributable to higher individual taxable income reflected an approximately $506 billion or 6% increase in the aggregate AGI of all individual taxpayers in all states that tax individual income. Following are the income components of AGI shown by AGI cohort.