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Pass-through Businesses Account for More than $1.6 Trillion of Payroll

1 min readBy: Kyle Pomerleau

For this week's 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. map, we're continuing our series on pass-through businesses. For the first map of the series, check out our map from last week.

Sole proprietorships, S corporations, limited liability companies (LLCs), and partnerships are also known as pass-through businesses. These entities are called pass-throughs, because the profits of these firms are passed directly through the business to the owners and are taxed on the owners’ 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. returns.

Today, Pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. es pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

Pass-through employers are also a significant source of salaries and wages. In 2011, pass-through employers paid a combined $1.6 trillion in salaries and wages, or 37 percent of all private sector payroll.

The total value of payroll paid by pass-through businesses in each state varied depending on their prominence. For example, a significant amount of private sector payroll came from pass-through businesses in South Dakota (50.4 percent), Montana (48.8 percent), and Idaho (47.5 percent). In contrast, a small share of private-sector payroll came from pass-through businesses in Massachusetts (33.3 percent), West Virginia (33.1 percent) and Hawaii (31.7 percent).

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Looking for more on pass-throughs? Check out our comprehensive overview.

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