Overview of the Federal Tax System in 2022

March 29, 2018 – June 8, 2022 R45145

Overview of the Federal Tax System in 2022
June 8, 2022
This report describes the federal tax structure and system in effect for 2022. The report also
provides selected statistics on the tax system as a whole. Historically, the largest component of
Molly F. Sherlock
the federal tax system, in terms of revenue generated, has been the individual income tax. For
Specialist in Public Finance
FY2021, $2.0 trillion, or 50.5% of the federal government’s revenue, was collected from the

individual income tax. The corporate income tax generated another $212 billion in revenue in
Donald J. Marples
FY2021, or 9.2% of total revenue. Social insurance or payroll taxes generated $1.3 trillion, or
Specialist in Public Finance
32.5% of revenue in FY2021. In FY2021, total revenues were 18.1% of gross domestic product

(GDP), slightly above the post-World War II average of 17.2% of GDP.

The largest source of revenue for the federal government is the individual income tax. The
federal individual income tax is levied on an individual’s taxable income, which is adjusted gross income (AGI) less
deductions. Tax rates based on filing status (e.g., married filing jointly, head of household, or single individual) determine the
amount of tax liability. Income tax rates in the United States are generally progressive, such that higher levels of income are
typically taxed at higher rates. Once tentative tax liability is calculated, tax credits can be used to reduce tax liability. Tax
deductions and tax credits are tools available to policymakers to increase or decrease the after-tax price of undertaking
specific activities. Individuals with high levels of deductions and credits relative to income may be required to pay the
alternative minimum tax (AMT).
The federal government also levies taxes on corporations, wage earnings, estates and gifts, and certain goods. Corporate
taxable income is subject to tax at a flat rate of 21%. Social Security and Medicare tax rates are, respectively, 12.4% and
2.9% of earnings. In 2022, Social Security taxes are levied on the first $147,000 of wages. Medicare taxes are assessed
against all wage income. Federal excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco.
Looking at the tax system as a whole, several observations can be made. Notably, the composition of revenues has changed
over time. Corporate income tax revenues have become a smaller share of overall tax revenues over time, while social
insurance revenues have trended upward as a share of total revenues. Social insurance revenues are a sizable component of
the overall federal tax system. Most taxpayers pay more in payroll taxes than income taxes. Many taxpayers pay social
insurance taxes but do not pay individual income taxes, having incomes below the amount that would generate a positive
income tax liability. From an international perspective, the U.S. federal tax system tends to collect less in federal revenues as
a percentage of GDP than other OECD countries.
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he U.S. federal tax system includes several elements. Income taxes are the primary
component, and the United States has an income tax that applies to the income of
T individuals and a separate income tax for corporations. Payroll taxes are levied on earned
income, with most of this revenue used to finance social insurance programs. The U.S. tax system
also includes an estate and gift tax, as well as various excise taxes.
At the end of 2017, President Trump signed into law P.L. 115-97 (commonly referred to as the
“Tax Cuts and Jobs Act” [TCJA]), which substantially changed the U.S. federal tax system.
Consequently, the federal tax system in effect for 2022 differs from what was in effect for 2017.1
Most of the changes to the individual income tax system in P.L. 115-97 are temporary and
scheduled to expire at the end of 2025. Thus, under current law, after 2025, the individual income
tax system is slated to look like the system that was in effect for 2017. In contrast, many of the
changes made in P.L. 115-97 affecting corporations are permanent.2
The tax system in 2022 also looks different than it did in 2020 and 2021, when numerous
temporary tax relief measures were available. In 2020 and 2021, many individuals received
recovery rebates, or stimulus payments structured as refundable tax credits.3 Individual taxpayers
may also have been able to claim a larger child tax credit due to temporary expansions in 2021, or
benefited from temporary increases in other refundable tax credits.4 There were also temporary
payroll tax credits that expired in 2021 for employers providing certain forms of COVID-related
paid leave or for employee retention.5
This report provides an overview of the federal tax system, including the individual income tax,
corporate income tax, payroll taxes, estate and gift taxes, and federal excise taxes, as in effect for
2022.
The Federal Tax System
The federal tax system has several components. The largest component, in terms of revenue
generated, is the individual income tax. In FY2021, the individual income tax generated $2.0
trillion in federal revenue (Figure 1). In FY2020, individual income tax revenue had been $1.6
trillion, a decline from $1.7 trillion in FY2019, with the decline due to the economic effects of
and policy response to the COVID-19 pandemic. In FY2021, 50.5% of federal revenue came
from the individual income tax. Corporate income tax receipts also declined during the pandemic.
In FY2021, corporate income tax receipts were $372 billion, or 9.2% of total federal revenues.
Corporate income tax receipts had been $230 billion in FY2019, and declined to $212 billion in
FY2020.

1 See CRS Report R45053, The Federal Tax System for the 2017 Tax Year, by Molly F. Sherlock and Donald J.
Marples.
2 Information on changes to the tax system enacted in the 2017 tax revision (P.L. 115-97) can be found in CRS Report
R45092, The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax Law, coordinated by Molly F. Sherlock and
Donald J. Marples.
3 See CRS Report R46415, COVID-19 and Direct Payments: Overview and Resources, coordinated by Margot L.
Crandall-Hollick.
4 See CRS In Focus IF12025, Refundable Tax Credits for Families in 2021, by Margot L. Crandall-Hollick.
5 See CRS Report R47062, Payroll Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief, by Anthony A.
Cilluffo and Molly F. Sherlock.
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The second-largest source of federal revenue is payroll taxes.6 In FY2021, payroll taxes generated
$1.3 trillion in federal revenue (32.5% of the total revenue). Revenues from payroll taxes
remained stable in FY2020, in contrast to income tax receipts, which declined in that year.
Receipts from other sources were $317 billion in FY2021 (7.8% of the total receipts). Revenues
from other sources also remained more stable in FY2020, when income tax receipts declined.
Figure 1. Federal Receipts by Source: FY2019-FY2021

Source: Office of Management and Budget (OMB), Historical Tables, Table 2.1, https://www.whitehouse.gov/
omb/historical-tables/.
The Individual Income Tax
The individual income tax is the largest source of revenue in the federal income tax system. Most
of the income reported on individual income tax returns is wages and salaries. CBO projects that
in 2022, 66% of total income reported on individual income tax returns will be from salaries and
wages.7 A substantial portion of business income in the United States is taxed in the individual
income tax system. Pass-through businesses, including sole proprietorships, partnerships
(including limited liability corporations), and S corporations, generally pass business income
through to the business’s owners, where that income is taxed at individual income tax rates.8
Projections indicated that in 2022, 9% of total income reported by individual taxpayers would be
net business income, including pass-through business income, farm, or Schedule E income.9

6 This category is “Social Insurance and Retirement Receipts” in the Office of Management and Budget’s Historical
Tables. Most of the revenue in this category is collected through various payroll taxes. There are, however, some
collections that come in the form of retirement contributions.
7 Congressional Budget Office (CBO), The Budget and Economic Outlook: 2022 to 2032, May 2022, available at
https://www.cbo.gov/publication/57950. See specifically the “Detailed Individual Income Tax Projections in CBO’s
May 2022 Baseline.”
8 See CRS Report R43104, A Brief Overview of Business Types and Their Tax Treatment, by Mark P. Keightley.
9 In addition to business income, Schedule E income includes income or losses from rental property, royalties, estates,
and trusts.
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Another 13% of taxable income is retirement-related, in the form of taxable pensions, annuities,
IRA distributions or taxable Social Security Benefits.10
Gross Income and Adjustments
To levy an income tax, income must first be defined. As a benchmark, economists often turn to
the Haig-Simons comprehensive income definition, which can differ from the measure of income
used in computing a taxpayer’s taxes. Under the Haig-Simons definition, taxable resources are
defined as changes in a taxpayer’s ability to consume during the tax year.11 Using this definition
of income, an employer’s contributions toward employee health insurance, for example, would be
counted toward the employee’s income. This income, however, is not included in the employee’s
taxable income under current tax law.
In practice, the individual income tax is based on gross income individuals accrue from a variety
of sources. Included in the individual income tax base are wages, salaries, tips, taxable interest
and dividend income, business and farm income, realized net capital gains, taxable pension and
annuity income, and income from rents, royalties, trusts, estates, and partnerships.
Gross income for tax purposes excludes certain items, which may deviate from the Haig-
Simmons definition of income. For example, employer-provided health insurance, pension
contributions, and certain other employee benefits are excluded from income subject to tax.12
Employer contributions to Social Security are also excluded from wages. Amounts received under
life insurance contracts are excluded from income. Another exclusion from income is the interest
received on certain state and local bonds.13 Some forgiven debts and various other items are also
excluded from income for tax purposes.14
There are special rules for income classified as capital gains or dividends.15 Capital gains (or
losses) are realized when assets are sold.16 The tax base excludes unrealized capital gains.17 There
are reduced tax rates for certain capital gains and dividends (discussed below in the “Tax Rates”

10 Congressional Budget Office (CBO), The Budget and Economic Outlook: 2022 to 2032, May 2022, available at
https://www.cbo.gov/publication/57950. See specifically the “Detailed Individual Income Tax Projections in CBO’s
May 2022 Baseline.”
11 The Haig-Simons comprehensive income definition was first developed in Robert Murray Haig, “The Concept of
Income–Economic and Legal Aspects,” in The Federal Income Tax, ed. Robert Murray Haig (New York, NY:
Columbia University Press, 1921), pp. 1-28; and Henry C. Simons, Personal Income Taxation: The Definition of
Income as a Problem of Fiscal Policy (Chicago, IL: University of Chicago Press, 1938). An overview of the concept
can be found in Jonathan Gruber, Public Finance and Public Policy, 2nd ed. (New York, NY: Worth Publishers, 2007).
12 Exclusions are a form of “tax expenditure.” Tax expenditures are revenue losses associated with targeted provisions
that move the income tax away from a “theoretical normal” tax system.
13 See CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt, by Grant A.
Driessen.
14 See CRS In Focus IF11535, The Tax Treatment of Canceled Mortgage Debt, by Mark P. Keightley.
15 See CRS Report 96-769, Capital Gains Taxes: An Overview, by Jane G. Gravelle; and CRS Report R43418, The
Taxation of Dividends: Background and Overview, by Jane G. Gravelle and Molly F. Sherlock.
16 Capital losses are generally deductible against capital gains. Taxpayers can also deduct up to $3,000 of capital losses
from ordinary income per tax year (the deduction is limited to $1,500 for married taxpayers filing separately).
17 Unrealized capital gains are also excluded at death. This is discussed further in the “Estate and Gift Taxes” section
below.
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section).18 As with ordinary income, there may be exclusions. For example, certain capital gains
on sales of primary residences are excluded from income.19
Income from operating a business through a proprietorship, partnership, or small business
corporation that elects to be treated similarly to a partnership (Subchapter S corporation), or
income from rental property, is also subject to the individual income tax.20 This income is the net
of gross receipts reduced by such deductible costs as payments to labor, depreciation, costs of
goods acquired for resale and other inputs, interest, and taxes.
A taxpayer’s adjusted gross income (AGI), the basic measure of income under the federal income
tax, is determined by subtracting “above-the-line” deductions from gross income.21 Above-the-
line deductions are available to taxpayers regardless of whether they itemize deductions or claim
the standard deduction (discussed further in “Filing Status and Deductions”). Above-the-line
deductions may be claimed for, among other items, contributions to qualified retirement plans by
self-employed individuals, contributions to individual retirement accounts (IRAs),22 interest paid
on student loans, higher education tuition expenses, and contributions to health savings
accounts.23 Temporarily, in 2020, there was a $300 above-the-line deduction for charitable
contributions.24 In 2021, individuals not itemizing deductions were allowed to deduct $300 for
charitable contributions in calculating taxable income (or $600 for married taxpayers filing join
returns).
Filing Status and Deductions
Tax liability depends on the filing status of the taxpayer. There are four main filing categories:
married filing jointly, married filing separately, head of household, and single individual. The
computation of taxpayers’ tax liability depends on their filing status, as discussed further below.
The amount of the standard deduction also depends on filing status. Deductions are subtracted
before determining taxable income.
Taxpayers have a choice between claiming the standard deduction or claiming the sum of their
itemized deductions. The standard deduction amount depends on filing status. The 2022 standard
deduction for single filers is $12,950, while the standard deduction for married taxpayers filing
jointly is twice that amount, or $25,900. The standard deduction for a head of household is
$19,400. There is an additional standard deduction for the elderly (taxpayers age 65 and older)
and the blind.25 The standard deduction amounts are indexed for inflation.26

18 Qualified dividends, which are generally dividends that have met certain holding period requirements, are taxed at
the same reduced rate as capital gains.
19 See CRS Report RL32978, The Exclusion of Capital Gains for Owner-Occupied Housing, by Jane G. Gravelle.
20 See CRS Report R43104, A Brief Overview of Business Types and Their Tax Treatment, by Mark P. Keightley.
21 A list of “above the line” deductions can be found in Internal Revenue Code (IRC) §62.
22 See CRS Report RL34397, Traditional and Roth Individual Retirement Accounts (IRAs): A Primer, by Elizabeth A.
Myers.
23 See CRS Report R45277, Health Savings Accounts (HSAs), by Ryan J. Rosso.
24 See CRS Insight IN11420, Temporary Enhancements to Charitable Contributions Deductions in the CARES Act, by
Jane G. Gravelle.
25 The additional standard deduction for married taxpayers filing jointly is $1,400 per spouse that is either blind or
elderly (or $2,800 if both blind and elderly). For single and head of household taxpayers, the additional standard
deduction is $1,750 (or $3,500 if both blind and elderly).
26 Beginning after 2018, the standard deduction will be indexed for inflation using the Chained Consumer Price Index
(C-CPI-U). For background information, see CRS Report R43347, Budgetary and Distributional Effects of Adopting
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When the sum of taxpayers’ itemized deductions exceeds the standard deduction, taxpayers may
choose to itemize. Deductions may be allowed for mortgage interest27 and charitable
contributions.28 Taxpayers may also claim up to $10,000 ($5,000 for married taxpayers filing
separately) in total deductions for state and local taxes (income, sales, or property taxes).29
Some deductions can only be itemized and claimed in excess of a floor. For example, medical
expenses can be deducted to the extent they exceed 7.5% of AGI. Casualty and theft losses
attributable to federally declared disasters can also be deducted in excess of 10% of AGI.30
An estimated 12.1% of taxpayers are expected to claim itemized deductions on their 2021 tax
returns.31 The share of taxpayers itemizing deductions is less than it was pre-2018; for 2017, JCT
estimated that 31.7% of tax filers would itemize deductions. The TCJA substantially changed the
individual income tax system by eliminating personal exemptions and nearly doubling the
standard deduction.32 These changes were effective in 2018, and are scheduled to expire after
2025.
Deduction for Qualified Business Income
The deduction for qualified business income is also taken in determining taxable income.33
Individual taxpayers can deduct 20% of qualified business income from a partnership, S
corporation, or sole proprietorship. Individual taxpayers can also deduct 20% of qualified Real
Estate Investment Trust (REIT) dividends, publicly traded partnership income, and cooperative
dividends. For certain taxpayers, the deduction is subject to two limitations. First, above threshold
amounts, the deduction begins to phase out for income from certain services, including health,
law, accounting, actuarial science, performing arts, consulting, athletics, financial services,
brokerage services, or investing and investments management services. These threshold amounts
are $315,000 for married taxpayers filing joint returns (adjusted for inflation to $340,100 in
2022), and $157,500 for all other taxpayers (adjusted for inflation to $170,050 in 2022). Second,

the Chained CPI, by Donald J. Marples.
27 See CRS In Focus IF11540, The Mortgage Interest Deduction, by Mark P. Keightley; and CRS Report R46429, An
Economic Analysis of the Mortgage Interest Deduction, by Mark P. Keightley.
28 See CRS In Focus IF11022, The Charitable Deduction for Individuals, by Margot L. Crandall-Hollick and Molly F.
Sherlock; CRS Insight IN11420, Temporary Enhancements to Charitable Contributions Deductions in the CARES Act,
by Jane G. Gravelle; and CRS Report R45922, Tax Issues Relating to Charitable Contributions and Organizations, by
Jane G. Gravelle, Donald J. Marples, and Molly F. Sherlock.
29 See CRS Report R46246, The SALT Cap: Overview and Analysis, by Grant A. Driessen and Joseph S. Hughes.
30 The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (P.L. 116-94, Division Q) modified the casualty loss
deduction for losses attributable to 2018 or 2019 disasters. The modifications (1) waived the 10% of AGI floor; (2)
increased the $100 floor for each casualty to $500; and (3) allowed taxpayers not itemizing deductions to add the
deduction to their standard deduction. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of the
Consolidated Appropriations Act, 2021, P.L. 116-260) extended these modifications to apply to 2020 disasters. See
CRS Report R45864, Tax Policy and Disaster Recovery, by Molly F. Sherlock and Jennifer Teefy.
31 The JCT estimates that for the 2021 tax year, approximately 138.3 million taxpayers will claim the standard
deduction while 19.1 million taxpayers will itemize deductions. See Joint Committee on Taxation, Overview Of The
Federal Tax System As In Effect For 2021, JCX-18-21, April 15, 2021.
32 Personal exemptions generally allowed for a deduction for each taxpayer and any dependents. For 2017, the
deduction was worth $4,050 per exemption. The deduction for personal exemptions phased out above certain income
levels.
33 See CRS Report R46402, The Section 199A Deduction: How It Works and Illustrative Examples, by Gary Guenther;
and CRS In Focus IF11122, Section 199A Deduction for Pass-through Business Income: An Overview, by Gary
Guenther.
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the deduction is also subject to limitation based on the taxpayer’s share of wages paid and
depreciable assets of the associated business. Specifically, the deduction is limited to the greater
of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the cost of qualified property. This
second limitation phases in over the same thresholds as the first limitation.
Tax Rates
The income tax system is designed to be progressive, with statutory marginal tax rates increasing
as income increases.34 At a particular statutory marginal tax rate, all individuals subject to the
regular income tax, regardless of their overall level of earnings, pay the same tax rate on taxable
income within the bracket. Once taxpayers’ incomes surpass a threshold level, placing them in a
higher marginal tax bracket, the higher marginal tax rate is only applied on income that exceeds
that threshold value. In 2022, the individual income tax system has seven marginal income tax
rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.35 These marginal income tax rates are applied
to taxable income to arrive at a taxpayer’s gross income tax liability.36 Threshold levels associated
with the rate brackets depend on filing status. Tax rates for 2022 are summarized in Table 1.
For most taxpayers, their average tax rate (individual income taxes paid divided by income) is
less than their statutory tax rate. This is due to the progressive nature of the tax system, coupled
with a variety of tax preference items (credits, deductions, exclusions, etc.). Many taxpayers,
particularly lower-income taxpayers, have negative average tax rates. Refundable tax credits,
such as the earned income tax credit (EITC) (discussed below), can lead to negative average tax
rates.
Table 1. Statutory Marginal Tax Rates, 2022
Tax Schedules by Filing Status
Married Filing Jointly

If taxable income is:
Then, tax is:
$0
to
$20,550
10% of the amount over $0
$20,550
to
$83,550
$2,055 plus 12% of the amount over $20,550
$83,550
to
$178,150
$9,615 plus 22% of the amount over $83,550
$178,150
to
$340,100
$30,427 plus 24% of the amount over $178,150
$340,100
to
$431,900
$69,295 plus 32% of the amount over $340,100
$431,900
to
$647,850
$98,671 plus 35% of the amount over $431,900
$647,850 plus

$174,253.50 plus 37% of the amount over $647,850

34 A marginal tax rate is the tax rate on the last dollar earned. See CRS In Focus IF12032, How Do Marginal Income
Tax Rates Work in 2021?, by Margot L. Crandall-Hollick. For a discussion of various tax rate metrics, see CRS Report
R44787, Statutory, Average, and Effective Marginal Tax Rates in the Federal Individual Income Tax: Background and
Analysis, by Molly F. Sherlock.
35 For historical perspective on marginal tax rates, see CRS Report RL34498, Federal Individual Income Tax Brackets,
Standard Deduction, and Personal Exemption: 1988 to 2022, by Gary Guenther.
36 Take, for example, a single taxpayer with taxable income of $50,000. That taxpayer would fall in the 22% statutory
rate bracket. However, that taxpayer’s tax liability would be the sum of taxes applied to income falling within the first
three brackets, the 10%, 12%, and 22% brackets. Specifically, the taxpayer would pay $1,027.50 (or 10%) on the first
$10,275 in taxable income, $3,780 (or 12%) on the next $31,500 in taxable income, and $1,809.50 (or 22%) on the last
$8,225 in income. Thus, the taxpayer’s total tax bill would be $6,617 on $50,000 in taxable income. Even though this
taxpayer is in the 22% tax bracket, their average tax rate is 13.2%.
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Single
If taxable income is:
Then, tax is:
$0
to
$10,275
10% of the amount over $0
$10,275
to
$41,775
$1,027.50 plus 12% of the amount over $10,275
$41,775
to
$89,075
$4,807.50 plus 22% of the amount over $41,775
$89,075
to
$170,050
$15,213.50 plus 24% of the amount over $89,075
$170,050
to
$215,950
$34,647.50 plus 32% of the amount over $170,050
$215,950
to
$539,900
$49,335.50 plus 35% of the amount over $215,950
$539,900 plus

$162,718 plus 37% of the amount over $539,900
Heads of Households
If taxable income is:
Then, tax is:
$0
to
$14,650
10% of the amount over $0
$14,650
to
$55,900
$1,465 plus 12% of the amount over $14,650
$55,900
to
$89,050
$6,415 plus 22% of the amount over $55,900
$89,050
to
$170,050
$13,708 plus 24% of the amount over $89,050
$170,050
to
$215,950
$33,148 plus 32% of the amount over $170,050
$215,950
to
$539,900
$47,836 plus 35% of the amount over $215,950
$539,900 plus

$161,218.50 plus 37% of the amount over $539,900
Source: Internal Revenue Code §1 and Internal Revenue Service (IRS) Rev. Proc. 2021-45.
Certain higher-income individuals may be subject to the alternative minimum tax (AMT). There
are two marginal tax rates under the AMT, 26% and 28%, that are applied to an expanded income
base. The AMT is discussed in further detail below.
Tax Rates on Capital Gains and Dividends
As was noted above, income earned from long-term capital gains and qualified dividends may be
taxed at lower rates. The rate on long-term capital gains and qualified dividends is 0%, 15%, or
20%, depending on the taxpayer’s taxable income and filing status. The rates are linked to the
statutory rate brackets that were in effect before P.L. 115-97 was enacted, such that the 20% rate
applies to taxpayers that would have been in the 39.6% bracket (under the pre-P.L. 115-97 rate
structure). Taxpayers that would have been in the 25%, 28%, 33%, and 35% tax brackets under
the former rate structure face a 15% tax rate on long-term capital gains and qualified dividends,
whereas the rate is 0% for taxpayers that would have been in the 10% and 15% tax brackets under
the former rate structure. The taxable income thresholds for long-term capital gains and qualified
dividends in 2022 are summarized in Table 2.
Table 2. Maximum Tax Rate on Long-Term Capital Gains
and Qualified Dividends, 2022
Married Filing Jointly
Single
Heads of Households
Taxable Income
Tax Rate
Taxable Income
Tax Rate
Taxable Income
Tax Rate
Less than $83,350
0% Less than $41,675
0% Less than $55,800
0%
$83,350 to $517,200
15% $41,675 to $459,750
15% $55,800 to $488,500
15%
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Married Filing Jointly
Single
Heads of Households
Above $517,200
20% Above $459,750
20% Above $488,500
20%
Source: Internal Revenue Code §1 and Internal Revenue Service (IRS) Rev. Proc. 2021-45.
Net Investment Income37
Certain higher-income individuals may be subject to an additional 3.8% tax on net investment
income. Specifically, the tax applies to the lesser of (1) net investment income, or (2) the amount
by which modified AGI exceeds fixed threshold amounts.38 The fixed threshold amounts are
$250,000 for taxpayers filing jointly and $200,000 for other filers.39 The net-investment-income
tax increases the maximum tax rate on capital gains and dividends to 23.8%. The maximum rate
on other investment income, including interest, annuities, royalties, and rent, is 40.8%.
Tax Credits
After a taxpayer’s tax liability has been calculated, tax credits are subtracted from gross tax
liability to arrive at a final tax liability (see Figure 2). Tax credits offset tax liability on a dollar-
for-dollar basis. There are two different types of tax credits: refundable and nonrefundable. If a
tax credit is refundable, and the credit amount exceeds tax liability, a taxpayer receives the credit
(or a portion of the credit) as a refund. If credits are not refundable, then the credit is limited to
the amount of tax liability. In the case of most individual income tax credits, unused credits
cannot be carried forward to offset tax liability in future tax years. Some credits are phased out as
income rises to limit or eliminate benefits for higher-income taxpayers.
Tax credits that are refundable or have a refundable portion include the earned income tax credit
(EITC)40 and the child tax credit (CTC).41 The American Opportunity Tax Credit (AOTC), a tax
credit for tuition expenses, also has a refundable portion.42 The health insurance premium tax
credit is another refundable credit.43 Advanced refundable tax credits were also provided as a
form of temporary relief in response to the COVID-19 pandemic.44

37 See CRS In Focus IF11820, The 3.8% Net Investment Income Tax: Overview, Data, and Policy Options, by Mark P.
Keightley.
38 Modified AGI for this purpose is AGI increased by the amount excluded from income as foreign earned income.
39 The threshold amount is $125,000 for married taxpayers filing separate returns. These threshold amounts are not
adjusted for inflation.
40 See CRS Report R43805, The Earned Income Tax Credit (EITC): How It Works and Who Receives It, by Margot L.
Crandall-Hollick, Gene Falk, and Conor F. Boyle; CRS Report R44057, The Earned Income Tax Credit (EITC): An
Economic Analysis, by Margot L. Crandall-Hollick; CRS Report R44825, The Earned Income Tax Credit (EITC):
Legislative History, by Margot L. Crandall-Hollick; and CRS Report R43873, The Earned Income Tax Credit (EITC):
Administrative and Compliance Challenges, by Margot L. Crandall-Hollick.
41 See CRS Report R41873, The Child Tax Credit: How It Works and Who Receives It, by Margot L. Crandall-Hollick;
CRS In Focus IF11077, The Child Tax Credit, by Margot L. Crandall-Hollick; and CRS Report R45124, The Child Tax
Credit: Legislative History, by Margot L. Crandall-Hollick.
42 See CRS Report R42561, The American Opportunity Tax Credit: Overview, Analysis, and Policy Options, by Margot
L. Crandall-Hollick.
43 See CRS Report R44425, Health Insurance Premium Tax Credit and Cost-Sharing Reductions, by Bernadette
Fernandez.
44 See CRS Insight IN11605, COVID-19 and Direct Payments: Comparison of First and Second Round of “Stimulus
Checks” to the Third Round in the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2), by Margot L. Crandall-
Hollick; and CRS Report R46415, COVID-19 and Direct Payments: Overview and Resources, coordinated by Margot
L. Crandall-Hollick.
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Figure 2. Visualization of the U.S. Individual Income Tax System

Source: This graphic was previously published as CRS Infographic IG10020, The U.S. Individual Income Tax System, 2020, by Mol y F. Sherlock.
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Overview of the Federal Tax System in 2022

A nonrefundable tax credit can be claimed for child and dependent care expenses.45 There are also
tax credits for other purposes, such as education.46
Tax credits add to the complexity of the tax system for various reasons. For one, tax credits can
cause effective marginal tax rates to differ from statutory marginal tax rates for many taxpayers.47
For example, the earned income tax credit (EITC) phases in as income increases, reducing a
taxpayer’s marginal tax rate. At higher income levels, as the credit phases out, the taxpayer faces
a higher marginal tax rate during that phaseout range. Thus, effective marginal tax rates can be
less than or greater than statutory rates. Tax credits can also pose administrative challenges.48
Alternative Minimum Tax
Individuals may also pay tax under the alternative minimum tax (AMT). The AMT applies lower
tax rates to a broader income base. The policy goal of the AMT is to prevent certain higher-
income taxpayers from using the graduated personal income tax rate structure and tax preferences
to avoid paying sufficient amounts of taxes.49
To calculate the AMT, an individual first adds back various tax items, including certain itemized
deductions and business tax preferences, to regular taxable income.50 This grossed-up amount
becomes the income base for the AMT.
The AMT exemption is subtracted from the AMT’s income base. For 2022, the AMT exemption
is $118,100 for married taxpayers filing a joint return, $59,050 for married taxpayers filing
separate returns, and $75,900 for all other individual tax filers.51 These exemption amounts are
indexed for inflation. The AMT exemption is reduced by 25% of the amount by which a
taxpayer’s AMT taxable income exceeds certain threshold amounts. In 2022, the AMT exemption
amount begins to phase out at $1,079,800 for married taxpayers filing a joint return and $539,900
for all other individual tax filers.
A two-tiered rate structure of 26% and 28% is assessed against AMT taxable income.52 The
taxpayer compares his AMT tax liability to his regular tax liability and pays the greater of the
two. Most nonrefundable personal tax credits are allowed against the AMT. Few taxpayers are
subject to the individual AMT. For 2021, JCT estimated that roughly 200,000 tax filers paid the
AMT (out of the approximately 177 million returns that were expected to be filed).53

45 See CRS Report R44993, Child and Dependent Care Tax Benefits: How They Work and Who Receives Them, by
Margot L. Crandall-Hollick.
46 See CRS Report R41967, Higher Education Tax Benefits: Brief Overview and Budgetary Effects, by Margot L.
Crandall-Hollick.
47 See CRS Report R44787, Statutory, Average, and Effective Marginal Tax Rates in the Federal Individual Income
Tax: Background and Analysis, by Molly F. Sherlock.
48 See CRS Report R43873, The Earned Income Tax Credit (EITC): Administrative and Compliance Challenges, by
Margot L. Crandall-Hollick.
49 See CRS Report R44494, The Alternative Minimum Tax for Individuals: In Brief, by Donald J. Marples.
50 For example, the income tax base for the AMT does not allow a deduction for state and local taxes paid.
51 Internal Revenue Service, Internal Revenue Procedure 2021-45, at https://www.irs.gov/pub/irs-drop/rp-21-45.pdf.
52 The 28% rate bracket threshold for 2019 is $97,400 for married taxpayers filing separate returns and $194,800 for all
other taxpayers.
53 Joint Committee on Taxation, Overview Of The Federal Tax System As In Effect For 2021, JCX-18-21, April 15,
2021, at https://www.jct.gov/publications/2021/jcx-18-21/.
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The Corporate Income Tax54
The corporate income tax generally only applies to C corporations (also known as regular
corporations). These corporations—named for Subchapter C of the Internal Revenue Code (IRC),
which details their tax treatment—are generally treated as taxable entities separate from their
shareholders.55 That is, corporate income is taxed once at the corporate level according to the
corporate income tax system. When corporate dividend payments are made or capital gains are
realized, income is taxed again at the individual-shareholder level according to the individual tax
system (discussed above). In contrast, noncorporate businesses, including S corporations56 and
partnerships,57 pass their income through to owners who pay taxes. Collectively, these
noncorporate business entities are referred to as pass-throughs. For these types of entities,
business income is taxed only once, at individual income tax rates. As discussed above, taxpayers
may be allowed to claim a 20% deduction from certain income earned by pass-through
businesses.
The corporate income tax is designed as a tax on corporate profits (also known as net income).
Broadly defined, corporate profit is total income minus the cost associated with generating that
income.58 Business expenses that may be deducted from income include employee compensation;
the decline in value of machines, equipment, and structures (i.e., depreciation); general supplies
and materials; advertising; and interest payments (subject to certain limitations).59 Businesses
may also be allowed 100% first-year depreciation or to expense the costs of certain property.60
The corporate income tax also allows for a number of other special deductions, credits, and tax
preferences that reduce taxes paid by corporations. Oftentimes, these provisions are intended to
promote particular policy goals (promoting charitable giving or encouraging investment in
renewable energy, for example). A corporation’s tax liability can be calculated as follows:
Taxes = [(Total Income – Deductible Expenses) × Tax Rate] – Tax Credits.

54 See CRS Report RL34229, Corporate Tax Reform: Issues for Congress, by Jane G. Gravelle.
55 See CRS Report R43104, A Brief Overview of Business Types and Their Tax Treatment, by Mark P. Keightley.
56 An S corporation is a closely held corporation that elects to be treated as a pass-through entity for tax purposes. S
corporations are named for Subchapter S of the IRC, which details their tax treatment. By electing S corporation status,
a business is able to combine many of the legal and business advantages of a C corporation with the tax advantages of a
partnership. See CRS Report R43104, A Brief Overview of Business Types and Their Tax Treatment, by Mark P.
Keightley.
57 A partnership is a joint venture consisting of at least two partners organized to operate a trade or business with each
partner sharing profits, losses, deductions, credits, and the like. The most common partnerships include general
partnerships, limited liability partnerships, limited partnerships, publicly traded partnerships, and electing large
partnerships. For more information, see CRS Report R43104, A Brief Overview of Business Types and Their Tax
Treatment, by Mark P. Keightley.
58 The primary components of business income are revenues generated from the sale of goods and services. Other
income sources include investment income, royalties, rents, and capital gains.
59 The 2017 tax revision (P.L. 115-97) limits interest payments, with the limitation generally set at 30% of adjusted
taxable income. The limitation does not apply to small businesses with average gross receipts of $25 million or less or
to certain regulated public utilities. Temporary law enacted as part of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act (P.L. 116-136) relaxes the limitation to 50% of adjusted taxable income for tax years 2019 and
2020. See CRS Insight IN11287, Limits on Business Interest Deductions Under the Coronavirus Aid, Relief, and
Economic Security (CARES) Act, by Jane G. Gravelle.
60 See CRS Report RL31852, The Section 179 and Section 168(k) Expensing Allowances: Current Law and Economic
Effects, by Gary Guenther.
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Some corporations experience net operating losses (NOLs), which occur when total income less
expenses is negative.61 Under permanent law, losses arising after 2017 can generally be “carried
forward” indefinitely, and used to offset future tax liability.62 The NOL deduction is generally
limited to 80% of taxable income.63
The corporate income tax rate is a flat 21%. Thus, tax liability before applying tax credits is
generally calculated as 21% of taxable income. Corporate tax liability can be reduced by claiming
corporate tax credits. Credits claimed by corporations include the research credit,64 the low-
income housing tax credit,65 certain energy credits,66 the new markets tax credit,67 the work
opportunity tax credit,68 and an employer credit for paid family and medical leave.69
In broad economic terms, the base of the corporate income tax is the return to equity capital.
Income produced by corporate capital investment includes that produced by corporate investment
of borrowed funds (debt), and that produced by investment of equity, or funds provided by
stockholders. The deductibility of certain items makes it such that the corporate income tax
applies largely to equity capital. Specifically, wages are tax deductible, so labor’s contribution to
corporate revenue is excluded from the corporate tax base. Additionally, profits from debt-
financed investment are paid out as interest, which is partially deductible. To the extent that
interest is deductible, the return to debt capital is excluded from the corporate tax base. Equity
investments are financed by retained earnings and the sale of stock. The income equity
investment generates is paid out as dividends and the capital gains that accrue as stock increases
in value. Neither form of equity income is generally deductible. Thus, the base of the corporate
income tax is largely the return to equity capital.
With the base of the corporate tax being largely equity income, the flow of capital out of the
corporate sector and other economic adjustments probably cause the burden of the tax to spread
to all owners of capital: owners of unincorporated business, bondholders, and homeowners. In
analyzing the incidence of the corporate tax, the Congressional Budget Office (CBO) and JCT
generally distribute most of the burden to owners of capital, with a smaller portion falling on
labor income.70 Since owners of capital tend to be in higher income groups, and most of the
corporate tax burden falls on capital, the corporate tax is widely viewed as being progressive.

61 See CRS Report R46377, The Tax Treatment and Economics of Net Operating Losses, by Mark P. Keightley.
62 Temporary law enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136)
allows for NOLs generated in taxable years beginning after December 31, 2017, and before January 1, 2021, to be
carried back for up to five years and suspends the limit to 80% of taxable income for taxable years beginning before
January 1, 2021. See CRS Insight IN11296, Tax Treatment of Net Operating Losses (NOLs) in the Coronavirus Aid,
Relief, and Economic Security (CARES) Act, by Jane G. Gravelle.
63 There are special rules for farming and insurance company losses.
64 See CRS Report RL31181, Research Tax Credit: Current Law and Policy Issues for the 114th Congress, by Gary
Guenther; and CRS In Focus IF10757, The 2017 Tax Law (P.L. 115-97) and Investment in Innovation, by Gary
Guenther.
65 See CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley; and CRS
In Focus IF11335, The Low-Income Housing Tax Credit: Policy Issues, by Mark P. Keightley.
66 See CRS Report R43453, The Renewable Electricity Production Tax Credit: In Brief, by Molly F. Sherlock; CRS In
Focus IF10479, The Energy Credit or Energy Investment Tax Credit (ITC), by Molly F. Sherlock; and CRS In Focus
IF11455, The Tax Credit for Carbon Sequestration (Section 45Q), by Angela C. Jones and Molly F. Sherlock.
67 See CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean Lowry.
68 See CRS Report R43729, The Work Opportunity Tax Credit, by Benjamin Collins and Sarah A. Donovan.
69 See CRS In Focus IF11141, Employer Tax Credit for Paid Family and Medical Leave, by Molly F. Sherlock.
70 See CRS In Focus IF10742, Who Pays the Corporate Tax?, by Jane G. Gravelle.
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Corporate Income Earned Abroad71
There are a number of rules governing the taxation of foreign-source income earned by U.S.
corporations. The United States has a quasiterritorial tax system (pure territorial tax systems tax
only income earned within a country’s borders). In general, dividends received by U.S. corporate
shareholders from their controlled foreign corporations (CFCs) are eligible for a 100% dividends-
received deduction. However, certain forms of passive or easily shifted income are taxed in the
year earned—under IRC Subpart F. In addition, global intangible low-taxed income (GILTI) is
taxed at 10.5%.72 A deduction is allowed for the foreign derived intangible income (FDII)—
roughly the share of intangible income that is attributed to foreign activity.
Current law also contains a general antiabuse provision whose focus is primarily on U.S.
subsidiaries of foreign parents, although it applies in general to all related parties. Unlike Subpart
F or the GILTI provision, the base erosion and antiavoidance tax (BEAT) is not aimed at
including income but at disallowing deductions for certain “base erosion” payments made by U.S.
parents to their foreign subsidiaries that historically have been used to shift profits out of the
United States. BEAT imposes a minimum tax which is equal to 10%, in 2022, of the sum of
taxable income and base erosion payments on corporations with average annual gross receipts of
at least $500 million over the past three tax years and with deductions attributable to outbound
payments exceeding 3% of overall deductions.73
Social Insurance and Retirement Payroll Taxes
Payroll taxes are used to fund specific programs, largely Social Security and Medicare.74 Social
Security and Medicare taxes are generally paid at a combined rate of 15.3% of wages, with 7.65%
being paid by the employee and employer alike.75
The Social Security part of the tax, or the old age, survivors, and disability insurance (OASDI)
tax, is 6.2% for both employees and employers (12.4% in total).76 In 2022, the tax applies to the
first $147,000 in wages. This wage base is adjusted annually for the growth in average wages.
The Medicare portion of the tax, or the Medicare hospital insurance (HI) tax, is 1.45% for both
employees and employers (2.9% in total).77 There is no wage cap for the HI tax (the Medicare HI
tax applies to all wage earnings). Certain higher-income taxpayers may be subject to an additional
HI tax of 0.9%. For married taxpayers filing jointly, combined wages above $250,000 are subject

71 See CRS Report R47003, Corporate Income Taxation in a Global Economy, by Jane G. Gravelle, Mark P. Keightley,
and Donald J. Marples; CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-
97), by Jane G. Gravelle and Donald J. Marples; and CRS In Focus IF11809, Trends and Proposals for Corporate Tax
Revenue, by Donald J. Marples and Jane G. Gravelle.
72 The GILTI tax rate is 10.5% in 2018 and through 2025. After 2025, the GILTI tax rate is scheduled to increase to
13.125%. See CRS In Focus IF11943, GILTI: Proposed Changes in the Taxation of Global Intangible Low-Taxed
Income, by Jane G. Gravelle.
73 The BEAT tax rate increased from 5% in 2018 to 10% in 2019, and is scheduled to increase to 12.5% after 2025.
74 The taxes are also known as Federal Insurance Contributions Act (FICA) taxes. See CRS Report R47062, Payroll
Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief, by Anthony A. Cilluffo and Molly F. Sherlock.
75 Self-employed taxpayers pay both the employer and employee share.
76 See CRS Report R42035, Social Security Primer, by Dawn Nuschler.
77 See CRS Report R40425, Medicare Primer, coordinated by Patricia A. Davis.
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to the additional 0.9% HI tax.78 The threshold for single and head of household filers is $200,000.
These threshold amounts are not indexed for inflation.
Employers may also be subject to a federal unemployment insurance payroll tax.79 This tax is
0.6% on the first $7,000 of wages.80 Federal unemployment insurance payroll taxes are used to
pay for the administrative costs of the unemployment insurance (UI) program. State UI taxes
generally pay for UI benefits.81
Most taxpayers pay more in payroll taxes than income taxes. For 2022, the Tax Policy Center
estimates that 62.9% of tax filing units will have a payroll tax liability that exceeds income tax
liability.82 Taxpayers closer to the top of the income distribution are more likely to have an
income tax liability that exceeds payroll tax liability (see Figure 3).

78 The threshold amount for married taxpayers filing separately is $125,000.
79 See CRS In Focus IF10336, The Fundamentals of Unemployment Compensation, by Julie M. Whittaker and Katelin
P. Isaacs; and CRS Report R44527, Unemployment Compensation: The Fundamentals of the Federal Unemployment
Tax (FUTA), by Julie M. Whittaker.
80 The tax rate is 6% of total wages for each employee, up to $7,000. However, there is a federal credit of 5.4% for state
unemployment taxes, making the effective federal tax rate 0.6%.
81 See CRS Report RL33362, Unemployment Insurance: Programs and Benefits, by Julie M. Whittaker and Katelin P.
Isaacs.
82 Tax Policy Center, T21-0182 - Distribution of Federal Payroll and Income Taxes by Expanded Cash Income Level,
August 18, 2021, available at https://www.taxpolicycenter.org/model-estimates/distribution-federal-payroll-and-
individual-income-taxes-august-2021/t21-0181.
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Figure 3. Share of Taxpayers with Payroll Taxes Greater Than Income Taxes and
Average Payroll and Income Tax Rates, by Income Quintile 2022

Source: CRS graphic using Tax Policy Center Data.
Notes: Income quintile breaks are 20% at $27,700, 40% at $54,700, 60% at $98,200, and 80% at $179,100 in
2020 dol ars. Income groups are determined using expanded cash income.
Most low- and middle-income taxpayers pay more in payroll taxes than in income taxes.83 The
average payroll tax rate across all taxpayers is estimated to be 6.7% for 2022. The average rate is
higher in the middle of the income distribution, and lower at the top of the income distribution.
The lower average payroll tax rate at the top of the income distribution is largely a consequence
of the wage base limit for the OASDI tax. Average income tax rates, in contrast, increase across
the income distribution. Refundable tax credits (discussed above) result in negative average
income tax rates in the lowest two income quintiles. Only in the highest quintile does the average
income tax rate exceed the average payroll tax rate (see Figure 3).

83 Tax Policy Center, T21-0182 - Distribution of Federal Payroll and Income Taxes by Expanded Cash Income Level,
August 18, 2021, available at https://www.taxpolicycenter.org/model-estimates/distribution-federal-payroll-and-
individual-income-taxes-august-2021/t21-0181.
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Estate and Gift Taxes
Upon death, an individual’s estate may be subject to tax.84 The base of the federal estate tax is
generally property transferred at death, less allowable deductions and exemptions. An unlimited
marital deduction is allowed for property transferred to a surviving spouse. Other allowable
deductions include estate administration expenses and charitable bequests. The effective estate
tax exemption is $12.06 million for 2022.85 The value of the estate over the exemption amount is
generally taxed at a rate of 40%.86
The federal gift tax operates alongside the estate tax to prevent individuals from avoiding the
estate tax by transferring property to heirs before dying. For 2022, the first $16,000 of gifts from
one individual to another is excluded from taxation and does not apply to the lifetime
exemption.87 Any amount over this annual exclusion lowers the effective lifetime estate tax
exemption.
The gift tax and estate tax are unified in that the same lifetime exemption amount applies to both
taxes ($12.06 million in 2022). Being unified, taxable gifts reduce the exemption amount that is
available for estate tax purposes. The gift tax rate is 40%, the same as the top rate for the estate
tax, for gifts beyond the exemption amount.
Few taxpayers pay the estate tax. From 2021 through 2025, an estimated 0.13% of decedents will
pay the estate tax.88 The estate tax is also progressive, generally only being paid by taxpayers in
the top income quintile. For taxpayers in the 95th to 99th percentiles, the estate tax liability has
been estimated to be 0.2% of cash income in 2021.89 For taxpayers in the top 1% of the income
distribution, the estate tax has been estimated to be 0.4% of cash income in 2021.
Excise Taxes90
From a policy or economic perspective, excise taxes are levied on the consumption of goods and
services rather than income. Unlike sales taxes, they apply to particular commodities, rather than
to broad categories. Historically, the federal government has levied excise taxes, but not a broad-
based sales tax, instead leaving sales taxes to the states as a revenue source.
Federal excise taxes are levied on a variety of products. The collection point of the tax varies
across products. For some goods, taxes are collected at the production level. Other excise taxes

84 See CRS Report R42959, Recent Changes in the Estate and Gift Tax Provisions, by Jane G. Gravelle; and CRS In
Focus IF11812, Tax Treatment of Capital Gains at Death, by Jane G. Gravelle.
85 Although estate tax rates are graduated, the exemption is applied in the form of a credit and offsets taxes applied at
the lower rates.
86 The exemption amount is adjusted for inflation. For the most recent exemption level, see https://www.irs.gov/
businesses/small-businesses-self-employed/estate-tax.
87 A married couple could each give a child $16,000 for a total gift of $32,000. This $32,000 in gifts would not apply to
the lifetime exemption. Gifts can also be made to more than one child. The exemption amount is indexed for inflation
in $1,000 increments.
88 Tax Policy Center, T21-0230 - Estate Tax Returns and Liability Under Current Law and Pre-2017 Tax Act Law,
2021-2031, September 23, 2021, at https://www.taxpolicycenter.org/model-estimates/baseline-estate-tax-tables-
september-2021/t21-0230-estate-tax-returns-and-liability.
89 Tax Policy Center, T21-0134 - Average Effective Federal Tax Rates—All Tax Units, By Expanded Cash Income
Percentile, 2021, August 5, 2021, available at https://www.taxpolicycenter.org/model-estimates/baseline-share-federal-
taxes-july-2021/t21-0134-average-effective-federal-tax-rates.
90 See CRS Report R46938, Federal Excise Taxes: Background and General Analysis, by Anthony A. Cilluffo.
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are collected on retail sales. In terms of receipts, the single largest tax is the excise tax on
gasoline.91 Other prominent excise taxes are those on diesel and other fuels; trucks, trailers, and
tractors; aviation-related taxes and fees;92 excise taxes on beer, wine, and distilled spirits; taxes on
tobacco products;93 Affordable Care Act (ACA) taxes and fees (e.g., branded pharmaceuticals
fee);94 and taxes on firearms and ammunition.95
Most federal excise taxes are paid into federal trust funds devoted to specific activities, as
opposed to remaining in the federal budget’s general fund. In FY2021, 76% of the $75 billion in
excise tax revenue supported trust funds, with the remainder being general fund revenue.96 The
largest trust fund is the Highway Trust Fund. Devoted revenue sources include excise taxes on
fuels, trucks, and tires. Aviation-related excise taxes support the Airport and Airway Trust Fund,
the second-largest of the excise-tax-supported trust funds.97 General fund excise taxes include
taxes on alcohol and tobacco and ACA-related excise taxes.
Excise taxes can result in consumers paying higher prices for goods and services. Overall,
households from the lower part of the income distribution tend to pay a larger share of their
income in excise taxes than higher-income households.98 Thus, taken as a whole, federal excise
taxes are generally believed to be regressive. The degree of regressivity can vary for different
types of excise taxes. For example, tobacco excise taxes are estimated to be more regressive than
aviation-related excise taxes.99
Tax Statistics
Taxes as a Share of the Economy
Federal revenues are derived from several sources and have collectively ranged from roughly
one-fifth to one-seventh the size of the economy. Figure 4 displays total federal tax revenues and
major sources of federal tax revenue as percentages of gross domestic product (GDP) since 1945.
For FY2021, revenues were 18.1% of GDP, slightly above the post-World War II average of
17.2% of GDP.
Since the mid-1940s, the individual income tax has been the largest single source of federal
revenue (business income may also be taxed under the individual income tax system, as

91 Congressional Budget Office, Revenue Projections, by Category, May 2022, available at https://www.cbo.gov/data/
budget-economic-data#7.
92 See CRS Report R44749, The Airport and Airway Trust Fund (AATF): An Overview, by Rachel Y. Tang and Bart
Elias.
93 See CRS In Focus IF11941, Proposed Tobacco Excise Tax Changes in H.R. 5376, the Reconciliation Bill, by
Anthony A. Cilluffo.
94 Before 2021, there was an annual fee on health insurance providers. See CRS Report R43225, Patient Protection and
Affordable Care Act: Annual Fee on Health Insurers, by Suzanne M. Kirchhoff. This fee is repealed after 2020.
95 See CRS Report R45123, Guns, Excise Taxes, Wildlife Restoration, and the National Firearms Act, by R. Eliot
Crafton, Jane G. Gravelle, and William J. Krouse.
96 Office of Management and Budget, Historical Tables, Table 2.4, available at https://www.whitehouse.gov/omb/
budget/Historicals.
97 See CRS Report R44749, The Airport and Airway Trust Fund (AATF): An Overview, by Rachel Y. Tang and Bart
Elias.
98 Tax Policy Center Briefing Book, “Who Bears the Burden of Federal Excise Taxes?” available at
http://www.taxpolicycenter.org/briefing-book/who-bears-burden-federal-excise-taxes. The distribution of federal excise
taxes is estimated for the 2019 tax year.
99 Ibid.
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previously discussed in “The Individual Income Tax”). Between 2000 and 2010, however, the
individual income tax receipts decreased relative to the size of the economy, falling from nearly
10% of GDP in 2000 to just over 6% in 2010. Individual income tax receipts have subsequently
increased and were above 9% of GDP in FY2021. Over time, the corporate income tax has fallen
from the second- to the third-largest source of revenue. In the late 1960s, corporate taxes were
replaced by social insurance and retirement taxes as the second-leading revenue source.
Corporate receipts as a share of GDP have fallen further in recent years. Excise taxes have also
decreased as a share of GDP over time.
Figure 4. Federal Revenue as a Percentage of GDP, 1945-2021

Source: CRS calculations and graphic using data from U.S. Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2023, Historical Tables.
Composition of Tax Revenue
The changing shares of federal revenues over time are more clearly shown in Figure 5. For
example, the corporate income tax accounted for roughly 30% of federal revenue in 1946, but
approximately 9% in FY2021.100 Excise tax revenue was less than 2% of federal receipts in 2021,
down from 18% in 1946. In contrast, receipts for social insurance and retirement taxes have risen
post-World War II with the enactment of Social Security and Medicare and were the second-
largest source of federal receipts at in FY2021, at 33% of federal revenue.

100 See CRS Report R42113, Reasons for the Decline in Corporate Tax Revenues, by Mark P. Keightley. Historical
data on federal receipts by source can be found in Table 2.1 of the Historical Tables published by the Office of
Management and Budget (OMB), available at https://www.whitehouse.gov/omb/historical-tables/. Corporate income
tax revenue increased to 9% of total federal revenue for FY2021.
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Figure 5. Composition of Federal Revenue
(Selected Years 1946-2021)

Source: CRS calculations and graphic using data from U.S. Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2023, Historical Tables.
The Distribution of the Tax Burden
The U.S. individual income tax system is generally progressive. As shown in Figure 6, taxpayers
with lower incomes tend to have a proportionally smaller share of the overall individual income
tax burden. JCT projections indicate that in 2019, taxpayers in lower income categories, on
average, had a negative share of individual income taxes.101 Thus, on average, these groups
receive more in refundable tax benefits than they pay in federal individual income taxes.102 For
taxpayers in income groups above $200,000, projections for 2019 show that their share of taxes
paid exceeds their share of income earned. About 50% of taxpayers fall into an income category
below $50,000. In contrast, just over 7% of filers fall into an income category above $200,000.
Since higher-income taxpayers pay a larger share of income taxes relative to their share of
income, the system is generally progressive, and causes after-tax income to be more equally
distributed than before-tax income.
The tax system as a whole is progressive, but not as progressive as the individual income tax
system. Payroll taxes and excise taxes tend to be regressive, with higher average tax rates paid by
taxpayers in lower income groups. Thus, taken together in evaluating the federal tax system as a

101 Projections of the distribution of income and income taxes in 2019 can be found in Table A-8 of Joint Committee on
Taxation, Overview Of The Federal Tax System As In Effect For 2019, JCX-9-19, March 20, 2019.
102 Refundable tax benefits are the primary mechanism in the tax code that can reduce poverty. See CRS Report
R45971, The Impact of the Federal Income Tax Code on Poverty, by Margot L. Crandall-Hollick, Gene Falk, and
Jameson A. Carter.
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whole, payroll taxes and excise taxes offset some of the progressivity of the individual income
tax.103
Figure 6. Shares of Income and Individual Income Taxes by Income Level,
2021 Projections

Source: CRS and Joint Committee on Taxation (JCT).
Notes: The income concept used by JCT is AGI adjusted to more closely measure cash income.
International Comparisons
How the U.S. tax system compares to those in other countries is a perennial tax policy question.
Figure 7 shows revenue as a percentage of GDP for OECD countries. The average over the 1987-
2019 time period is shown, inside the band illustrating the high and low for the period. Total U.S.
taxes as a percentage of GDP have historically been below the average for OECD countries.104
Four countries have tended to have lower taxes as a percentage of GDP than the United States,
with most others tending to have higher taxes relative to the size of the economy. Note that such a
direct comparison can be difficult to interpret, as it does not take into account government
spending that reflects each country’s policy preferences or deficit/surplus levels that provide more
context.

103 Congressional Budget Office, The Distribution of Household Income, 2018, August 2021, available at
https://www.cbo.gov/publication/57061.
104 Organisation for Economic Co-operation and Development, Revenue Statistics 2019, Tax Revenue Trends in the
OECD, December 5, 2019.
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Overview of the Federal Tax System in 2022

Figure 7. Government Tax Revenue as a Percentage of GDP
OECD Countries, 1990-2019

Source: OECD Revenue Statistics.
Note: Government revenue includes all federal, state, and local tax col ections. The bars for each country
il ustrate the range over the 1990 through 2019 time period (range spanning from high to low).
Table 3 provides this additional context for the United States and the other major democratic
countries in the G-7. Among the G-7 countries, the United States has both the lowest revenue as a
percentage of GDP and the highest deficit level in 2021.105 Globally, fiscal policy was largely
supportive during the pandemic, which contributed to budget deficits in 2021. Deficits are
expected to decline as fiscal policy supports are removed and economies continue to recover from
pandemic-induced downturns.
Table 3. U.S. Fiscal Position Compared to Other Industrialized Nations, 2021
Government Revenues as
Government Expenditures Surplus/Deficit as a % of

a % of GDP
as a % of GDP
GDP
Canada
40.6%
46.0%
-5.4%
France
51.9%
59.9%
-8.0%
Germany
45.3%
50.2%
-4.9%
Italy
46.4%
55.8%
-9.4%
Japan
36.9%
43.3%
-6.4%
United Kingdom
38.9%
47.9%
-9.1%
United States
33.2%
45.8%
-12.5%

105 The relatively low level of revenue collections in the United States may be partially explained by the lack of a
federal-level consumption tax (like a Value-Added Tax), which is a feature of the other countries’ tax systems.
Similarly, the level of government spending may be partially explained by the lack of federal provision of health care
that occurs in the other G-7 countries.
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Overview of the Federal Tax System in 2022

Source: OECD Economic Outlook Annex Tables 29, 30, and 31, at https://www.oecd.org/economy/outlook/
statistical-annex/.
Note: Government revenue and expenditures includes all federal, state, and local col ections (tax and nontax)
and spending.
Concluding Remarks
The U.S. federal tax system in 2022 looks substantively different than it did before 2018, or when
temporary measures tax relief measures were in place in 2020 and 2021. The changes enacted in
P.L. 115-97 affected most parts of the tax system. Over the longer term, as tax policies that were
temporary in P.L. 115-97 expire, and delayed tax policies begin to phase in, Congress may choose
to consider whether expirations, phase-ins, or other delayed policies in P.L. 115-97 should be
modified.
This report provides an overview of the federal tax system, as in effect in 2022. Information on
taxes relative to the size of the economy, the distribution of the tax burden, and how the U.S. tax
system compares to tax systems globally may provide context for consideration of future tax
policy changes.

Author Information

Molly F. Sherlock
Donald J. Marples
Specialist in Public Finance
Specialist in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R45145 · VERSION 11 · UPDATED
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