Last week, the IRS released its Individual Income Tax Data. This data is a comprehensive look at the 145.4 million 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. returns that were filed in 2011. Among the information on incomes, tax rates, and tax shares, this report includes data on refundable and non-refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit (EITC). s. 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. s are provisions in the tax code that reduce a taxpayer’s tax bill by a specified amount. This is distinct from a deduction, which allows taxpayers to reduce their taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. on which the income tax is levied.
One of the largest and fastest growing refundable tax credits is the American Opportunity Tax Credit. This credit gives taxpayers with qualifying education expenses (tuition, enrollment fees, and course materials) up to a $2,500 tax credit. On top of this, 40 percent of the value of the tax credit is refundable. Meaning, taxpayers with no tax liability can still receive up to $1,000. Taxpayers can only receive this credit for four years and have to have an 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.” below $90,000 for singles and $180,000 for married couples.
One of the Fastest Growing Refundable Tax Credits between 2010 and 2011
In 2011, 12.8 million taxpayers received the American Opportunity Tax Credit—refundable and nonrefundable portions combined (Table 1, below). This represented a 7.1 percent increase from the 11.97 million taxpayers who received it last year. The total value of this credit was $11.5 billion in 2011, a growth of 8.4 percent from a $10.6 billion value in 2010. The American Opportunity Tax Credit grew faster than the Earned Income Tax Credit (EITC), which grew by 2 percent by number of returns and 5.6 in dollar amount between the same years.
A Majority of the Refundable Portion is Received by Those with AGIs Under $25,000
IRS data also shows the distribution of the tax credit by income level (Chart 1, Below). In 2011, the refundable portion of the tax credit was valued at about $6.57 billion. Taxpayers with AGIs below $25,000 received a vast majority of the dollars from the refundable portion of the credit (72 percent). Approximately 45 percent of that went to those with AGIs of $15,000 and lower (including those with AGIs of zero). Only one percent of those who received the refundable portion of the tax credit had AGIs over $75,000 in 2011.
A Majority of the Nonrefundable Portion is Received by Those with AGIs Between $75,000 and $200,000
Not surprisingly, those with higher AGIs and tax burdens received more dollars from the nonrefundable portion of this tax credit. Approximately 50 percent of the credit’s dollars go to taxpayers with AGIs between $75,000 and $200,000. 32.6 percent of the credit dollars go to taxpayers with AGIs between $100,000 and $200,000. No taxpayer with an AGI greater than $200,000 received these credits. This is due to the fact that the AGI limit for the American Opportunity Credit is $180,000 for married taxpayers.
Taxpayers with AGIs between $100,000 and $200,000 received the most Dollars from the American Opportunity Tax Credit in 2011
When combining the refundable and nonrefundable credit dollars, the distribution is somewhat bimodal. There is a high concentration of credit dollars to those with AGIs between $5,000 and $20,000 (approximately 29 percent). This is due to mostly to the refundable portion of the credit. There is also a high concentration of credit dollars to those with AGIs between $50,000 and $200,000 (approximately 35 percent). The group that received the most dollars from the American Opportunity Tax Credit was those with AGIs between $100,000 and $200,000, receiving approximately 14.1 percent of the total.
Read more about education tax credits here and here
Notes about the data:
1: When determining whether the amount of the American Opportunity Tax Credit applies against income taxes, other taxes, or is refundable, the IRS applies the credits in the order in which they appear on the IRS 1040 form. For example, an individual could have an income tax burden of $2,000. When applying the $2,500 credit, the first $2,000 would be applied to their income tax burden. The next $200 could be applied to other taxes. The remaining $300 would be sent to the taxpayer in the form of a refund.
2: Due to the fact that IRS determines the credits by applying them in the order on the IRS 1040 form, it is not possible to simply sum the number of tax returns across the three categories of taxes the credit applies to. A single tax return could theoretically be counted in all three categories. To see the categories broken down by number of returns and dollars amount, see attached tables.
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Table 1: American Opportunity Tax Credit, Tax Years 2010 and 2011 (Millions of Dollars, Thousands of Returns) |
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|
Refundable Portion |
Non-Refundable Portion |
Total |
||||||||
|
Used to offset income tax |
Used to offset all other taxes |
Total |
||||||||
|
Year |
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
|
2011 |
7637 |
$ 6,573.00 |
5911 |
$ 4,647.00 |
592 |
$ 298.00 |
See Note 2 |
$ 4,945.00 |
12824 |
$ 11,517.00 |
|
2010 |
7219 |
$ 6,040.00 |
5345 |
$ 4,241.00 |
640 |
$ 340.00 |
See Note 2 |
$ 4,581.00 |
11979 |
$ 10,620.00 |
|
Percentage Change |
5.8% |
8.8% |
10.6% |
9.6% |
-7.4% |
-12.3% |
See Note 2 |
7.9% |
7.1% |
8.4% |
|
Table 2: Distribution of American Opportunity Tax Credit, Percent of Returns and Dollars, 2011 |
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|
Refundable Portion |
Used to Offset Income Tax |
Used to Offset All Other Taxes |
Total Refundable and Non-Refundable |
|||||
|
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
|
|
No AGI |
3.8% |
4.3% |
0.0% |
0.0% |
2.3% |
3.4% |
See Note 2 |
2.5% |
|
$1 under $5,000 |
8.0% |
7.9% |
0.0% |
0.0% |
14.0% |
5.4% |
4.6% |
|
|
$5,000 under $10,000 |
15.3% |
15.6% |
0.0% |
0.0% |
11.1% |
9.7% |
9.2% |
|
|
$10,000 under $15,000 |
17.1% |
17.7% |
0.6% |
0.1% |
8.0% |
8.1% |
10.4% |
|
|
$15,000 under $20,000 |
15.3% |
15.8% |
2.0% |
0.4% |
7.5% |
6.4% |
9.4% |
|
|
$20,000 under $25,000 |
11.2% |
10.7% |
5.0% |
1.7% |
8.0% |
7.3% |
7.0% |
|
|
$25,000 under $30,000 |
8.4% |
7.6% |
6.1% |
5.3% |
6.7% |
6.6% |
6.6% |
|
|
$30,000 under $40,000 |
9.6% |
9.1% |
10.0% |
8.3% |
12.9% |
15.6% |
8.9% |
|
|
$40,000 under $50,000 |
5.7% |
5.6% |
9.2% |
7.9% |
11.5% |
13.7% |
6.8% |
|
|
$50,000 under $75,000 |
4.6% |
4.7% |
21.6% |
22.1% |
13.8% |
17.2% |
12.0% |
|
|
$75,000 under $100,000 |
0.8% |
0.9% |
17.7% |
20.2% |
3.4% |
5.1% |
8.8% |
|
|
$100,000 under $200,000 |
0.2% |
0.1% |
27.7% |
34.6% |
0.8% |
1.5% |
14.1% |
|
|
$200,000 or more |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
|
Table 3: Distribution of American Opportunity Tax Credit, Number of Returns and Dollar Amount, 2011 (Thousands of Dollars) |
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|
Refundable Portion |
Used to Offset Income Tax |
Used to Offset All Other Taxes |
Total Refundable and Non-Refundable |
|||||
|
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
Number of Returns |
Amount |
|
|
No AGI |
291719 |
$ 281,570.00 |
603 |
$ 376.00 |
13679 |
$ 10,271.00 |
See Note 2 |
$ 292,217.00 |
|
$1 under $5,000 |
612762 |
$ 516,323.00 |
0 |
$ – |
82887 |
$ 16,145.00 |
$ 532,468.00 |
|
|
$5,000 under $10,000 |
1171109 |
$ 1,026,217.00 |
0 |
$ – |
65934 |
$ 28,771.00 |
$1,054,988.00 |
|
|
$10,000 under $15,000 |
1308673 |
$ 1,165,698.00 |
33960 |
$ 3,511.00 |
47128 |
$ 24,086.00 |
$1,193,295.00 |
|
|
$15,000 under $20,000 |
1165947 |
$ 1,039,374.00 |
119408 |
$ 20,897.00 |
44389 |
$ 19,147.00 |
$1,079,418.00 |
|
|
$20,000 under $25,000 |
852150 |
$ 702,702.00 |
297033 |
$ 80,920.00 |
47218 |
$ 21,789.00 |
$ 805,411.00 |
|
|
$25,000 under $30,000 |
641587 |
$ 497,544.00 |
360378 |
$ 246,300.00 |
39728 |
$ 19,632.00 |
$ 763,476.00 |
|
|
$30,000 under $40,000 |
730485 |
$ 596,891.00 |
594074 |
$ 384,386.00 |
76518 |
$ 46,445.00 |
$1,027,722.00 |
|
|
$40,000 under $50,000 |
434463 |
$ 369,947.00 |
544256 |
$ 367,787.00 |
67957 |
$ 40,723.00 |
$ 778,457.00 |
|
|
$50,000 under $75,000 |
351872 |
$ 310,016.00 |
1279246 |
$ 1,024,613.00 |
81793 |
$ 51,094.00 |
$1,385,723.00 |
|
|
$75,000 under $100,000 |
63960 |
$ 58,809.00 |
1044692 |
$ 940,041.00 |
20374 |
$ 15,194.00 |
$1,014,044.00 |
|
|
$100,000 under $200,000 |
11945 |
$ 7,599.00 |
1637822 |
$1,607,686.00 |
4756 |
$ 4,420.00 |
$1,619,705.00 |
|
|
$200,000 or more |
0 |
$ – |
0 |
$ – |
0 |
$ – |
$ – |