OTHER INFORMATION (UNAUDITED) 206

United States Government

Other Information (Unaudited) for the

Years Ended September 30, 2018, and 2017

Tax Burden

The Internal Revenue Code provides for progressive tax rates, whereby higher earned income is generally subject to

higher tax rates. The following tables present the latest available information on income tax and related income, deductions,

and credit: for individuals by income level, and for corporations by size of assets.

Individual Income Tax Liability for Tax Year 2016

Average

Total Average Income

Number of Income AGI Per Tax per Income

Taxable AGI Tax Return Return Tax as a

Adjusted Gross Income Returns (in millions (in millions (in whole (in whole Percentage

(AGI) (In thousands) of dollars) of dollars) dollars) dollars) of AGI

Under $15,000 .................... 34,916 55,654 1,903 1,594 55 3.4%

$15,000 under $30,000........ 29,646 655,110 18,587 22,098 627 2.8%

$30,000 under $50,000........ 26,753 1,047,405 58,168 39,151 2,174 5.6%

$50,000 under $100,000...... 33,199 2,367,475 209,856 71,312 6,321 8.9%

$100,000 under $200,000 .... 18,858 2,552,481 321,564 135,353 17,052 12.6%

$200,000 under $500,000 .... 5,583 1,588,349 308,249 284,497 55,212 19.4%

$500,000 or more................ 1,318 1,959,465 527,721 1,486,696 400,395 26.9%

Total ............................... 150,273 10,225,939 1,446,048
207 OTHER INFORMATION (UNAUDITED)

Corporate Income Tax Liability for Tax Year 2015

Percentage of

Income Subject Total Income Tax Income Tax After

Total Assets to Tax After Credits Credits to 

(In thousands of dollars) (in millions of dollars) (in millions of dollars) Taxable Income

Zero Assets ................................ 21,291 6,627 31.1%

$1 under $500............................. 8,606 1,619 18.8%

$500 under $1,000 ...................... 3,942 974 24.7%

$1,000 under $5,000 ................... 13,667 4,273 31.3%

$5,000 under $10,000.................. 8,581 2,793 32.5%

$10,000 under $25,000................ 13,120 4,306 32.8%

$25,000 under $50,000................ 12,890 4,210 32.7%

$50,000 under $100,000.............. 15,296 4,948 32.3%

$100,000 under $250,000 ............ 25,377 8,017 31.6%

$250,000 under $500,000 ............ 27,404 8,477 30.9%

$500,000 under $2,500,000 ......... 110,454 32,281 29.2%

$2,500,000 or more ..................... 1,114,453 251,097 22.5%

Total ...................................... 1,375,081 329,622

Tax Gap

The tax gap is the difference between what taxpayers should pay and what they actually pay on time. The most recent

estimate of the annual gross tax gap, based on a study released in 2016, is about $458.0 billion for the Tax Year 2008-2010

timeframe. This amount represents the amount of noncompliance with tax laws. This study also estimated that $52.0 billion

of the gross tax gap would eventually be collected, resulting in a net tax gap of $406.0 billion. The IRS remains committed to

finding ways to increase compliance and reduce the tax gap, while minimizing the burden on the vast majority of taxpayers

who pay their taxes accurately and on time.

The tax gap is the aggregate amount of tax (excluding interest and penalties) that is imposed by the tax laws for any

given tax year but is not paid voluntarily and timely. The tax gap arises from three types of noncompliance: not filing

required tax returns on time or at all (the nonfiling gap), underreporting the correct amount of tax on timely filed returns (the

underreporting gap), and not paying on time the full amount reported on timely filed returns (the underpayment gap).

Underreporting of income tax, employment taxes, and other taxes represents 84.5 percent of the gross tax gap. Each instance

of noncompliance by a taxpayer contributes to the tax gap, whether or not the IRS detects it, and whether or not the taxpayer

is even aware of the noncompliance. Some of the tax gap arises from intentional (willful) noncompliance, and some of it

arises from unintentional mistakes.

The collection gap is the cumulative amount of assessed tax, penalties, and interest that has been assessed over many

years, but has not been paid by a certain point in time and which the IRS expects to remain uncollectible. In essence, it

represents the difference between the total balance of unpaid assessments and the net taxes receivable reported on IRS’s

balance sheet. The tax gap and the collection gap are related and overlapping concepts, but they have significant differences.

The collection gap is a cumulative balance sheet concept for a particular point in time, while the tax gap is like an income

statement item for a single year. Moreover, the tax gap estimates include all noncompliance, while the collection gap includes

only amounts that have been assessed (a small portion of all non-compliance).
OTHER INFORMATION (UNAUDITED) 208

Tax Expenditures

As discussed in greater detail in Note 17—Collections and Refunds of Federal Revenue, tax and other revenues 

reported reflect the effects of tax expenditures, which are special exclusions, exemptions, or deductions or which provide tax 

credits, preferential tax rates or deferrals of tax liability, that allow individuals and businesses to reduce taxes they may 

otherwise owe. 

The figures reported in the following table are estimates of tax expenditures using data from previous years and 

economic forecast from the fiscal year 2018 Midsession Review. The largest tax expenditures in fiscal year 2018 are the 

following (and see the table below):

x The exclusion from workers’ taxable income of employers’ contributions for health care, health insurance 

premiums, and premiums for long-term care insurance; 

x The exclusion of contributions to and the earnings of employer defined benefit and defined contribution pension 

funds (minus pension benefits that are included in taxable income); 

x Preferential tax rates on long-term capital gains; 

x Imputed rental income forms part of the total value of goods and services produced in a country. But unlike returns 

from other investments, the return on homeownership “imputed rent” is excluded from taxable income. In contrast, 

landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is 

effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their 

simultaneous role as their own landlords and exempting potential rent they would have paid themselves; and 

x Accelerated depreciation of machinery and equipment.

Largest Income Tax Expenditures

(In billions of dollars) 2018

Exclusion of employer contributions for medical insurance premiums & health care.................. 205.1

Defined benefit & defined contribution pension funds ............................................................. 142.2

Preferential tax rates on long-term capital gains..................................................................... 118.6

Exclusion of net imputed rental income ................................................................................. 116.6

Accelerated depreciation of machinery and equipment ........................................................... 67.8

Generally, identifying and measuring a tax expenditure requires defining a baseline tax system against which identified 

tax provisions are exceptions. The tax expenditures prepared for the Budget are estimated relative to a simplified 

comprehensive income tax, which defines income as the sum of consumption and the change in net wealth in a given period 

of time. Tax expenditure estimates do not necessarily equal the increase in federal revenues (or the change in the budget 

balance) that would result from repealing these special provisions, for the following reasons: 

x Eliminating a tax expenditure may have incentive effects that alter economic behavior, which can affect the resulting 

magnitudes of the activity or of other tax provisions or government programs. For example, if capital gains were 

taxed at ordinary rates, capital gain realizations would be expected to decline, resulting in lower tax receipts. Such 

behavioral effects are not reflected in the estimates. 

x Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can 

increase or decrease the tax revenue effect of other provisions. For example, even if behavior does not change, 

repeal of an itemized deduction could increase revenue costs from other deductions as some taxpayers move into 

higher tax brackets. Alternatively, an itemized deduction repeal could lower the revenue foregone from other 

deductions if taxpayers choose to claim the standard deduction over itemizing. Similarly, if two provisions were 

repealed simultaneously, the tax liability increase could be greater or less than the sum of the two separate tax 

expenditures, because each is estimated assuming that the other remains in force. 

x Repeal effects may depend on concurrent tax rate changes. Lowering or raising tax rates can decrease or increase the 

estimated revenues from a particular provision. A $10,000 charitable contributions deduction is worth $3,500 in 

corporate tax revenues at a 35 percent tax rate, but only $2,100 at a 21 percent tax rate. 
209 OTHER INFORMATION (UNAUDITED)

The President’s fiscal year 2006 Budget provided a presentation of the Department of the Treasury’s review of the tax 

expenditure budget. It focused on potential alternative baselines to a comprehensive income tax, including using a 

consumption tax, and defining negative tax expenditures (provisions that cause taxpayers to pay too much tax). Relative to a 

consumption tax baseline, a number of current tax provisions would be negative tax expenditures. More specifically, a 

consumption tax will not extend to saving or capital income. As an example, the exclusion for contributions to and earnings 

from retirement accounts would not be treated as a tax expenditure. Some of these also may not necessarily be negative tax 

expenditures under a comprehensive income tax as a baseline; the current reference law and normal law baselines represent a 

simplified version of comprehensive income. As an example, some medical expenditures may not be discretionary and 

perhaps should be excluded from income. 

A more comprehensive ranking, including rankings over a 10 year period, and descriptions of tax expenditures can be 

found at the following location from the Treasury’s Office of Tax Policy https://home.treasury.gov/policy-issues/taxpolicy/tax-expenditures.
OTHER INFORMATION (UNAUDITED) 210

Unmatched Transactions and Balances

Restated

Fiscal Year Fiscal Year

(in millions of dollars) 2018 2017

Change in intragovernmental unmatched balances:

Debt/investment..................................................................... - (4,145.3)

Benefit program contributions payable/receivable..................... 0.5 10.6

Accounts payable/receivable ................................................ 58.6 (574.9)

Advances from/to others & deferred credits/prepayments ......... (406.8) 61.2

Transfers payable/receivable .................................................. - (50.2)

Other assets/liabilities............................................................. - (61.0)

Fund balance with Treasury.................................................... 640.1 399.0

292.4 (4,360.6)

Unmatched intragovernmental transactions:

Borrowings interest revenue/expense-exchange ...................... 62.0 -

Non-expenditure transfers-in/out ............................................. (475.1) (438.4)

Expenditure transfers-in/out .................................................... 605.3 688.2

Transfers-in/out without reimbursement................................... 7.1 (89.5)

Benefit program revenue/cost ................................................. 339.7 (896.3)

Non-reciprocating................................................................... 4,884.5 8,914.8

Revenue and other financing sources...................................... - 297.4

Other non-budgetary financing sources for debt 

accruals/amortization.............................................................. - 61.0

Appropriations expended........................................................ (92.7) 342.4

Appropriations used ............................................................... 92.7 (342.4)

Appropriations received/warrants issued.................................. 154.3 (390.1)

Custodial and non-entity collections transferred out/in .............. (6,450.7) (6,865.6)

Other..................................................................................... 2,959.2 501.4

2,086.3 1,782.9

Unmatched transactions and balances, net ................................ 2,378.7 (2,577.7)

( ) Parentheses indicate a decrease to Net Position.
211 OTHER INFORMATION (UNAUDITED)

The Statement of Operations and Changes in Net Position includes an amount for unmatched transactions and balances

that result from the consolidation of federal reporting entities. Transactions between federal entities must be eliminated in

consolidation to calculate the financial position of the government. Many of the amounts included in the table represent

intragovernmental activity and balances that differed between federal entity trading partners and often totaled significantly

more in the absolute than the net amounts shown. The table also reflects other consolidating adjustments and other

adjustments that contributed to the unmatched transactions and balances amount. In fiscal year 2017, a number of lines in the

unmatched transactions and balances table were adjusted to zero after intragovernmental difference analysis determined they

were immaterial at or below $0.1 billion. The adjustments were added to, or subtracted from, gross cost in the Statement of

Net Cost.

Unmatched transactions and balances between federal entities impact not only in the period in which differences

originate but also in the periods where differences are resolved. As a result, it would not be proper to conclude that increases

or decreases in the unmatched amounts shown in the “Unmatched Transactions and Balances” table reflect improvements or

deteriorations in the government’s ability to resolve intragovernmental transactions. The federal community considers the

identification and accurate reporting of intragovernmental activity a priority.