Who Bears the Personal Federal Income Tax Burden?


By Gennaro DiBello

Many Americans are in the process of compiling data necessary to file their personal income tax returns by April 15. Over the years, we have heard a number of varying proposals to change the current personal income tax to a flat tax, and others have promoted that our personal tax system should be more progressive.

According to IRS data for 2007 (the most recent year available), upper income taxpayers bear a significant share of the personal income tax burden.

• The top 1% of filers paid approximately 40% of all federal income taxes and these taxpayers made approximately 23% of the reported adjusted gross income (AGI). The top 1% of filers reported AGI of just over $410,000.

• The top 5% of filers paid about 60.5% of the income tax and made 37% of all reported AGI. The top 5% of filers had AGI of approximately $160,000.

• The top 10% of filers were responsible for 71% of the tax burden, and reported 48% of total AGI. The top 10% of filers had AGI of $113,000.

The above statistics do not include social security taxes. Upper income earners are generally subject to various limitations on deductions and credits as a result of certain AGI thresholds, while those in the lower income thresholds benefit from various tax incentives, including earned income credit and various other deductions, which are generally permitted without limitations.

So, what’s an individual’s “fair share?”

When it comes to taxes, the debate over what is a fair share has been debated for as long as taxation has existed, and I don’t envision it ending any time soon. With that said, 2010 should prove to be a fascinating year, as expiring tax laws and proposed legislation promise to keep this discussion on the front burner for quite some time. Keep in touch with your Schneider Downs tax advisor to stay current on changes that may affect you or your business.

Schneider Downs provides accounting, tax, and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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