1

Office of Tax Analysis

Working Paper 109

September 2016

Using a Reconciliation of NIPA Personal Income and IRS 

AGI to Analyze Tax Expenditures

Tracy Foertsch

The OTA Working Papers Series presents original research by the staff of the Office of Tax

Analysis. These papers are intended to generate discussion and critical comment while

informing and improving the quality of the analysis conducted by the Office. The papers are

works in progress and subject to revision. Views and opinions expressed are those of the authors

and do not necessarily represent official Treasury positions or policy. Comments are welcome,

as are suggestions for improvements, and should be directed to the authors. OTA Working

Papers may be quoted without additional permission. 
2

USING A RECONCILIATION OF NIPA PERSONAL INCOME AND IRS AGI 

TO ANALYZE TAX EXPENDITURES

September 2016

Tracy Foertsch1

This paper provides a detailed reconciliation of the sources of differences between National 

Income and Product Accounts (NIPA) personal income and Internal Revenue Service (IRS) 

adjusted gross income (AGI). The reconciliation items include both methodological differences 

between the two measures (such as certain accounting conventions or imputations for certain 

non-cash income of households) and the more explicit exclusions or deductions that result from 

the tax system. In the executive summary below, we focus on these latter reconciliation items 

and describe differences between NIPA personal income and IRS AGI relative to a NIPA 

personal income that is less methodological adjustments (“adjusted NIPA personal income”). 

NIPA personal income is the broadest measure of economic income accruing to American 

households. Hence, a comparison of income reported to the IRS with NIPA personal income 

provides a measure how much income is not subject to tax because of exclusions and deductions.

Keywords: Income Tax Base and NIPA Personal Income

JEL Codes: H20 and E01

 

1 Tracy Foertsch: Office of Tax Analysis, U.S. Department of the Treasury, Tracy.Foertsch@treasury.gov. 
3

Executive Summary

This paper provides a detailed reconciliation of the sources of differences between National 

Income and Product Accounts (NIPA) personal income and Internal Revenue Service (IRS) 

adjusted gross income (AGI). The reconciliation items include both methodological differences 

between the two measures (such as certain accounting conventions or imputations for certain 

non-cash income of households) and the more explicit exclusions or deductions that result from 

the tax system.2In the executive summary below, we focus on these latter reconciliation items 

and describe differences between NIPA personal income and IRS AGI relative to a NIPA 

personal income that is less methodological adjustments (“adjusted NIPA personal income”). 

NIPA personal income is the broadest measure of economic income accruing to American 

households. Hence, a comparison of income reported to the IRS with NIPA personal income 

provides a measure how much income is not subject to tax because of exclusions and deductions.

Aggregate Exclusions and Deferrals

Aggregate IRS AGI equals 71.1 percent of adjusted NIPA personal income in 2012. IRS AGI is 

smaller than adjusted NIPA personal income because almost 39.1 percent of income earned in 

2012 is excluded or deferred from tax. The narrowing of the tax base is offset in part because 

AGI includes certain types of income that are not included in NIPA personal income such as net 

gains from the sale of assets, employee and self-employed contributions for government social 

insurance, and taxable pensions. These additional AGI inclusions cumulatively equal 17 percent 

of adjusted NIPA income in 2012 but only 12 percent in 1993. Net gains from the sale of assets 

and taxable pensions are substantial contributors to this increase. 

Nontaxable personal current transfer receipts (Medicare, Medicaid, non-taxable Social Security 

benefits, unemployment compensation, and other government social benefits to persons) 

represent the largest category of income excluded from tax. They equal 15.9 percent of adjusted 

NIPA personal income in 2012 and 13.3 percent in 1993. The investment income of insurance 

carriers and pension plans is the second largest category. The paper calculates a net market 

income as adjusted NIPA personal income less nontaxable personal current transfer receipts plus 

total contributions for government social insurance. The investment income of insurance carriers 

and pension plans and the investment income received by nonprofit institutions and retained by 

fiduciaries jointly equal 7 percent of this net market income in 2012. Employer contributions for 

insurance funds and employee-contributions to employer-sponsored health insurance account for 

another 7.4 percent of net market income. 

Figure 1 illustrates how selected exclusions from IRS AGI have evolved since 1960 as a percent 

of net market income.

 

2 A small residual gap between IRS AGI and our derivation of IRS AGI after taking all reconciliation items into 

account equals 3.7 percent of NIPA personal income less methodological differences in 2012.
4

Figure 1. Exclusions and Deferrals from IRS AGI as a Percent of Net Market Income

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRS = Internal Revenue Service; AGI = adjusted gross income; IRA = Individual Retirement Account. Data 

from 1960 are not available for all exclusions shown in Figure 1, including employee contributions to employersponsored health insurance, the investment income received by nonprofit institutions or retained by fiduciaries, and 

the earnings excluding capital gains of IRA and Keogh plans.

0

5

10

15

20

25

30

196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006200820102012

Employer contributions for employee pension funds

Employee contributions to defined contribution pension plans

IRA-Keogh excluding capital gains

Employer contributions for government social insurance

Employee contributions to employer-sponsored health insurance

Statutory adjustments

Investment income received by nonprofit institutions or retained by fiduciaries

Investment income of life insurance carriers and pension plans

Employer contributions for private group health insurance

Other exclusions
5

 The increasing cost of employer contributions for insurance funds is among the largest 

contributors to the narrowing of the tax base. In Figure 1, employer contributions for 

private group health insurance rise from about 1.5 percent of net market income in 1970 

to 2.8 percent in 1980, 3.8 percent in 1990, 4.1 percent in 2000, and 4.8 percent in 2012. 

At the same time, employer contributions for employee pension funds (defined benefit 

and defined contribution) have changed little, equaling 3.9 percent of net market income 

in 1970 and 2012. 

 Employee contributions to defined contribution pension plans have expanded from 0.6 

percent of net market income in 1987 to 1.7 percent in 2012.

 The investment income of life insurance carriers and pension plans increases as a percent 

of net market income through the early 1990s but generally trends down thereafter, 

equaling 7.8 percent of net market income in 1991 and 6.1 percent in 2012. This 

downward trend in part reflects the decline in personal income receipts on assets 

(personal interest income and personal dividend income combined) as share of adjusted 

NIPA personal income. 

 Statutory adjustments are adjustments to total income that are allowed as deductions in 

the calculation of AGI.3In 2012, they are 1.1 percent of net market income. They 

increase steadily from 1970 through 1986 but account for a smaller share of net market 

income thereafter.

Exclusions and Deferrals by Income Source

The fraction of income subject to tax varies substantially by source. In 2012, IRS salaries and 

wages are 73.4 percent of adjusted NIPA compensation of employees.4In comparison, IRS 

taxable interest income and dividend income are 24.7 percent of adjusted NIPA personal income 

receipts on assets while IRS net income (less loss) of nonfarm proprietorships and partnerships is 

48.5 percent of adjusted NIPA non-farm proprietors’ income. Within the various categories of 

income, the amount of income excluded or deferred has generally increased over time.

Adjusted NIPA compensation of employees is by far the largest component of adjusted NIPA 

personal income, representing about 67.1 percent of all adjusted NIPA personal income in 2012.

In 2012, just over 9.7 percent of adjusted NIPA compensation of employees is excluded from tax 

because it is paid as employer contributions for private group health insurance or as employee 

contributions to employer-sponsored health insurance. Employer contributions for employee 

insurance funds (including private group health insurance) are the single largest exclusion related 

to compensation of employees. An additional 10.6 percent of adjusted NIPA compensation of 

employees is deferred from tax through employee contributions to defined-contribution plans 

(e.g., 401k/403b/408k plans) and employer contributions for employee pension funds (defined 

benefit and defined contribution). Employer contributions for government social insurance, 

 

3

In 2012, the largest statutory adjustments include the deductible part of the self-employment tax, contributions to 

self-employed retirement plans, and the self-employed health insurance deduction.

4 Adjusted NIPA compensation of employees is NIPA compensation of employees less methodological adjustments. 

Adjusted NIPA personal income receipts on assets are NIPA personal income receipts on assets less methodological 

adjustments. Adjusted NIPA nonfarm proprietors’ income is NIPA nonfarm proprietors’ income less methodological 

adjustments.
6

which are included in NIPA compensation of employees but excluded from IRS AGI, represent 

almost 6 percent of adjusted NIPA compensation of employees. Other exclusions, such as taxexempt military pay, are small. 

Figure 2 illustrates how selected exclusions from IRS salaries and wages have evolved over time. 

In 2012, 25.2 percent of adjusted NIPA compensation of employees is excluded or deferred from 

tax compared to 21.9 percent in 2000, 19.4 percent in 1990, 15.5 percent in 1980, and 11.8 

percent in 1970. Employer contributions for private group health insurance contribute 5 

percentage points to this 13.4-percentage-point increase in the share excluded or deferred from 

tax between 1970 and 2012. Employee contributions to defined contribution plans and employer 

contributions for government social insurance contribute 4.7 percentage points. Other exclusions, 

such as employer contributions to employee pension funds, change very little as a percent of 

adjusted NIPA compensation of employees. 

Adjusted NIPA personal income receipts on assets are the second largest component of adjusted 

NIPA personal income, representing 11.8 percent of all adjusted NIPA personal income in 2012.

In 2012, nearly 66.4 percent of adjusted NIPA personal income receipts on assets accrues as the 

investment income of life insurance carriers and pension plans or as the earnings, excluding 

capital gains, of Individual Retirement Accounts (IRA) and Keogh plans. An additional 4.7 

percent is received in the form of tax-exempt interest and 6.3 percent as investment income 

received by nonprofit institutions or retained by fiduciaries.

Figure 3 illustrates how selected exclusions from IRS taxable interest income and dividend 

income have changed over time. In 2012, 77.4 percent of adjusted NIPA personal income 

receipts on assets is excluded or deferred from tax compared to 67.2 percent in 1993. The share 

of adjusted NIPA personal income receipts on assets accruing to IRA and Keogh plans has more 

than doubled, from 7.9 percent of adjusted NIPA personal income receipts on assets in 1993 to 

16.5 percent in 2012. At the same time, the share of adjusted NIPA personal income receipts on 

assets accounted for collectively by tax-exempt interest, the investment income of life insurance 

carriers and pension plans, and the investment income received by nonprofit institutions and 

retained by fiduciaries has changed little, equaling 59.3 percent of adjusted NIPA personal 

income receipts on assets in 1993 and 61 percent in 2012.
7

Figure 2. Exclusions and Deferrals from IRS Salaries and Wages as a Percent of Adjusted 

NIPA Compensation of Employees

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRS = Internal Revenue Service; NIPA = National Income and Product Accounts.

0

5

10

15

20

25

30

196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006200820102012

Employer contributions for government social insurance

Employee contributions to employer-sponsored health insurance

Employer contributions for private group health insurance

Employee contributions to defined contribution pension plans

Employer contributions for employee pension funds

Other exclusions
8

Figure 3. Exclusions from IRS Taxable Interest Income and Dividend Income as a Percent 

of Adjusted NIPA Personal Income Receipts on Assets

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRS = Internal Revenue Service; NIPA = National Income and Product Accounts.

Adjusted NIPA nonfarm proprietors’ income is 8.3 percent of all adjusted NIPA personal income 

in 2012. IRS S-corporation income and net income (less loss) of nonfarm proprietorships and 

partnerships is 43.8 percent of S-corporation dividends in personal income and adjusted NIPA 

nonfarm proprietors’ income in 2012, compared to 50.2 percent in 1993. Adjustments for 

misreporting on income tax returns represent the largest “exclusion”, equaling 31.2 percent of Scorporation dividends in personal income and adjusted NIPA nonfarm proprietors’ income in 

2012 and 41.6 percent in 1993. Statutory adjustments associated with self-employment account 

for an additional 5 percent of S-corporation dividends in personal income and adjusted NIPA 

nonfarm proprietors’ income in 1993 and 2012. An adjustment for differences in the BEA and 

IRS definitions of S-corporation income and partnership income account for 2.5 percent of Scorporation dividends in personal income and adjusted NIPA nonfarm proprietors’ income in 

1993 and 18.9 percent in 2012.

The Payroll Tax Base

For the payroll tax base with respect to the Medicare Part A Hospital Insurance (HI) program, 

the fractions of adjusted NIPA compensation of employees and adjusted NIPA nonfarm 

0

10

20

30

40

50

60

70

80

90

19931994199519961997199819992000200120022003200420052006200720082009201020112012

Tax-exempt interest

IRA-Keogh excluding capital gains

Investment income received by nonprofit institutions or retained by fiduciaries

Investment income of life insurance carriers and pension plans
9

proprietors’ income that are subject to Federal Insurance Contribution Act (FICA) taxes and 

Self-Employment Contribution Act (SECA) taxes, respectively, have generally declined. 

Adjusted NIPA personal income subject to payroll taxes has also generally fallen. Since 1994, 

the FICA tax base (and the SECA tax base) for the Medicare Part A HI program has not been 

limited by a maximum taxable income level. Because the FICA tax base for the Old-Age, 

Survivors, and Disability (OASDI) trust fund is limited to maximum taxable earnings ($118,500 

in 2016), a smaller fraction of adjusted NIPA compensation of employees is subject to the 

OASDI pay roll tax than is subject to the HI payroll tax. In 2012, OASDI taxable wage and 

salary earnings account for 62.7 percent of adjusted NIPA compensation of employees compared 

to 65.6 percent in 1994.

In contrast, HI taxable wage and salary earnings represent 77 percent of adjusted NIPA 

compensation of employees in 2012 compared to 77.2 percent in 1994. In 2012, employer 

contributions for private group health insurance and employee contributions to employersponsored health insurance are among the largest exclusions from FICA taxes, jointly accounting 

for 9.7 percent of adjusted NIPA compensation of employees. Employer contributions for 

employee pension funds account for another 5.6 percent of adjusted NIPA compensation of 

employees. Employer contributions for employee pension funds have changed little since 1994 

as a share of adjusted NIPA compensation of employees. However, employer contributions for 

private group health insurance and employee contributions to employer-sponsored health 

insurance have increased by 1.3 percentage points of adjusted NIPA compensation of employees. 

HI taxable self-employed earnings (nonfarm) are 46.4 percent of adjusted NIPA nonfarm 

proprietors’ income in 2012 compared to 49.4 percent in 1994. The primary driver of this 3-

percentage-point reduction is an increase in adjustments for misreporting on income tax returns 

as a percent of adjusted NIPA nonfarm proprietors’ income. Changes in the composition of 

national income have also contributed to changes in HI taxable wage and salary earnings and HI 

taxable self-employed earnings. Adjusted NIPA compensation of employees has declined as a 

share of adjusted NIPA personal income, from 70.5 percent in 1994 to 67.1 percent in 2012. 

Adjusted NIPA nonfarm proprietors’ income has increased as a share of adjusted NIPA personal 

income, from 7.5 percent in 1994 to 8.3 percent in 2012. Hence, a decreasing share of NIPA 

personal income is now attributable to compensation of employees and an increasing share to 

nonfarm proprietors’ income, of which approximately half is not subject to tax. Consistent with 

this, HI taxable wage and salary earnings and HI taxable self-employed earnings have declined 

from 58.4 percent of adjusted NIPA personal income in 1994 to 55.6 percent in 2012. 
10

I. Introduction

How large are tax expenditures? Tax expenditures are revenue losses attributable to provisions of 

the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income 

or which provide a special credit, a preferential rate of tax, or a deferral of tax liability. Tax 

expenditures are often scrutinized in tax reform efforts and their size and growth are often used

as motivation for tax reform.

On an annual basis, both the Joint Committee on Taxation (JCT) and the U.S. Treasury

Department provide estimates of individual tax expenditures. However, this list is not 

comprehensive, and producing consistent estimates of how tax expenditures change over time 

using these estimates is difficult. This is because the value of tax expenditures arises from many 

sources, including tax rate changes and credits. Moreover, tax expenditures are not additive 

making the aggregate of a list of tax expenditures misleading.

This paper presents alternative measures of the largest source of tax expenditures: those arising 

from exclusions and similar provisions that narrow the tax base. We provide an alternative

approach to analyzing the size of exclusions by reconciling National Income and Product

Accounts (NIPA) personal income with Internal Revenue Service (IRS) adjusted gross income

(AGI). The reconciliation items that we identify account for much of the difference between 

NIPA personal income and IRS AGI, resulting in a ‘derived’ AGI that closely approximates IRS 

AGI. Among the reconciliation items that we subtract from NIPA personal income to obtain our

derived measure of IRS AGI are various components of personal income that are excluded or 

deferred from tax. By using this ‘reconciliation method’ to assess such exclusions and deferrals

rather than the ‘accretive’ method used by JCT and Treasury (which measures them one by one),

we provide a more comprehensive estimate of their size. In addition, because of the longer time 

horizon over which consistent NIPA personal income and IRS AGI data are available, we can 

assess how exclusions and deferrals from tax have changed over time.

Between 1993 and 2012, our derived measure of IRS AGI accounts for an average of 75.1

percent of NIPA personal income less methodological adjustments. Not all of NIPA personal 

income appears on an IRS Form 1040 because some components of NIPA personal income are 

nontaxable and thus excluded from IRS AGI while taxation of other components (e.g., employee 

contributions to private defined contribution plans) is deferred. Misreporting further reduces how 

much of NIPA personal income is included in IRS AGI. Offsetting this, some components of 

IRS AGI are not part of NIPA personal income. The methodological adjustments that we 

subtract from NIPA personal income include imputed income in personal income and differences 

between NIPA accounting and income tax accounting (e.g., because of differences in the 

valuation of inventories and depreciation) for the income included in NIPA personal income and 

IRS AGI. They are subtracted so that exclusions and deferrals can be compared to a baseline that 

focuses on tax-related issues.

We find that exclusions and similar provisions that narrow the tax base have generally become 

larger over time. Between 1993 and 2012, the portion of NIPA personal income that is excluded

or deferred from tax has increased, from 36.4 percent of NIPA personal income less 
11

methodological adjustments in 1993 to 39.1 percent in 2012. It was highest in 2010 at 40.4

percent of NIPA personal income less methodological adjustments. At the same time, our 

derived measure of IRS AGI has fluctuated, equaling 72.2 percent of NIPA personal income less 

methodological adjustments in 1993 and 73.8 percent in 2012. This is because the portion of 

AGI that is not part of NIPA personal income (e.g., employee and self-employed contributions 

for government social insurance, net gains from the sale of assets, taxable pensions) has

generally increased as a share of NIPA personal income less methodological adjustments, from 

12.0 percent in 1993 to 17.0 percent in 2012. Consistent with this, the difference between our

derived measure of IRS AGI and the portion of AGI that is not part of NIPA personal income has 

fallen from 60.2 percent of NIPA personal income less methodological adjustments in 1993 to 

56.8 percent in 2012.

The remainder of this paper proceeds as follows: Section II broadly summarizes the 

reconciliation of NIPA personal income and IRS AGI. Section III describes in detail the line 

items comprising the individual reconciliation tables that we combine to produce the summary 

reconciliation data presented in Section II. These individual tables reconcile different types of 

NIPA personal income to their counterparts in IRS AGI. Section III also considers how the 

individual reconciliations tables for NIPA compensation of employees, NIPA nonfarm 

proprietors’ income, and NIPA personal income receipts on assets can be reorganized to answer 

questions about how the share of income subject to tax has changed over time.5

Section IV uses the reconciliation data from Section III to categorize more broadly components 

of NIPA compensation of employees, NIPA government and business transfer payments, NIPA 

proprietors’ income, NIPA rental income, and NIPA personal income receipts on assets as taxed 

components, untaxed components, deferred components, and methodological adjustments. It 

then considers trends in these four categories from 1993 to 2012 to identify whether the untaxed, 

deferred, and methodological categories grow over time as a share of NIPA personal income. In 

general, we find no large changes in the taxed components, untaxed components, deferred 

components, and methodological adjustments as a percent of NIPA personal income. 

Section V considers the implications of the reconciliation data for the payroll tax base. It 

reconciles NIPA compensation of employees to taxable wage and salary earnings for the 

Medicare Part A Hospital Insurance (HI) program and NIPA nonfarm proprietors’ income to 

nonfarm taxable self-employed earnings for the Medicare Part A HI program. Appendix A to the 

paper presents reconciliations of NIPA compensation of employees to IRS salaries and wages 

and NIPA nonfarm proprietors’ income to IRS net income (less loss) of business and professions 

(nonfarm proprietorships) and partnerships that extend back to 1960.

II. Overview of the Reconciliation of NIPA Personal Income and IRS AGI

Our starting point is the reconciliation of NIPA personal income and IRS AGI published by the 

 

5

Individual reconciliation tables are reorganized if the reconciliation accounts for a substantial portion of the 

difference between the type of NIPA personal income in question and its equivalent in IRS AGI.
12

U.S. Bureau of Economic Analysis (BEA) until 2009.

6

This reconciliation is useful for 

understanding how BEA derives NIPA personal income from source data. It is also valuable for 

revealing how taxable income, which is determined by tax concepts, tax incentives, and tax 

administration practicalities, compares to the more theoretical notion of “economic income,”

which NIPA personal income attempts to capture.

The reconciliation starts with the broadest measure of income accruing to households—NIPA 

personal income—and subtracts out those portions of personal income not included in AGI (e.g.,

nontaxable personal current transfer receipts) and adds in portions of AGI not included in 

personal income (e.g., net gains from the sale of assets) to arrive at a ‘BEA-derived’ AGI.7The 

reconciliation is done by type of income—compensation of employees, nonfarm and farm 

proprietors’ income, rental income, personal income receipts on assets (personal interest income 

and personal dividend income), other personal income not included in AGI (nontaxable 

government and business transfers, nontaxable employer contributions to pension and insurance 

funds), and other income included in AGI but not NIPA personal income (employee and selfemployed contributions to social insurance or payroll taxes, net capital gains from the sale of 

assets, taxable pensions, and certain other types of AGI).

BEA attributed the residual gap between BEA-derived AGI and IRS AGI to several sources, 

including the unavailability of source data (e.g., for income earned by individuals not required to 

file federal income tax returns as well as for the underreported income of federal income tax 

return filers), errors in the source data used for NIPA personal income and in the IRS measure of

AGI (because estimates are based on a probability sample), and errors in the calculation of the 

reconciliation items.

8

In 2004 and 2005 (the last years for which BEA published reconciliation 

 

6 The BEA reconciliation of NIPA personal income and IRS AGI was published as NIPA Table 7.19. See the NIPA 

tables published at the time of the preliminary 2009, Q1 gross domestic product news release (at 

http://www.bea.gov/histdata/histChildLevels.cfm?HMI=7) for the last published NIPA Table 7.19. See Mark 

Ledbetter (2007), “Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross 

Income,” Survey of Current Business, November, pp. 35-41, available at 

http://www.bea.gov/scb/pdf/2007/11%20November/1107_pi_agi.pdf, for the last published Survey of Current 

Business article discussing NIPA Table 7.19.

7 The reconciliation also included an intercomponent reallocation. The intercomponent reallocation ensured that 

BEA-derived AGI was comparable to IRS AGI for certain income types. Thus, the intercomponent reallocation 

included a reallocation of disability pensions taxed as wages from taxable pensions to wages and salaries and a 

reallocation of regulated investment company (RIC) interest to dividends from personal interest income to personal 

dividend income. We do not consider the intercomponent reallocation here because we are primarily interested in 

the aggregate reconciliation of NIPA personal income to IRS AGI. In aggregate, items included in the 

intercomponent reallocation sum to zero. Because we do not consider the intercomponent reallocation, we reconcile 

NIPA personal income receipts on assets to IRS taxable interest income and dividend income rather than showing 

separate reconciliations of NIPA personal interest income to IRS taxable interest income and NIPA personal 

dividend income to IRS dividend income.

8

For a discussion of the AGI gap, see Thae S. Park (1996), “Relationship between Personal Income and Adjusted 

Gross Income,” Survey of Current Business, May, pp. 78-92, available at 

http://www.bea.gov/scb/pdf/national/niparel/1996/0596gd.pdf. Also see Mark Ledbetter (2004), “Comparison of 

BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross Income,” Survey of Current Business, 

April, pp. 8-22, available at http://www.bea.gov/scb/pdf/2004/04April/0404PI&AG.pdf.
13

data), the gap between BEA-derived AGI and IRS AGI was between 8 percent and 9 percent of 

BEA-derived AGI.

9

We recreate and update BEA’s reconciliation of NIPA personal income and IRS AGI for 1993 

through 2012 (see Table 1).

10 Our reconciliation accounts for much of the difference between 

NIPA personal income and IRS AGI. For example, the gap between our measure of BEAderived AGI and IRS AGI averages 4.3 percent of BEA-derived AGI over the 20-year period.

11

It is smallest in 2010 at 2.1 percent of BEA-derived AGI. In Table 1, other personal income 

exempt or excluded from AGI includes statutory adjustments. Statutory adjustments (line 23 

through line 36 on IRS Form 1040) are adjustments to total income that are allowed as 

deductions in the calculation of AGI. In 2012, they include the health savings account deduction,

moving expenses, one half of the self-employment tax, contributions to self-employed retirement 

plans, the self-employed health insurance deduction, alimony payments, Individual Retirement 

Account (IRA) deductions, student loan interest, the tuition and fees deduction, the domestic 

production activities deduction, and other adjustments (see Table 1A).12 Between 1993 and 2012, 

contributions to self-employed retirement plans and IRA deductions fell from 45.6 percent of 

total statutory adjustments to 24.4 percent of total statutory adjustments. At the same time, the 

self-employed health insurance deduction generally rose from 5.7 percent of total statutory 

adjustments to 19.2 percent of total statutory adjustments.

Rearranging Table 1 allows us to characterize how much of NIPA personal income is included in 

the income tax base (see Table 1B). Between 1993 and 2012, BEA-derived AGI is on average 

75.1 percent of NIPA personal income less methodological adjustments. Some components of 

NIPA personal income are nontaxable and thus excluded from IRS AGI while taxation of other 

components (e.g., employee contributions to private defined contribution plans) is deferred. An 

adjustment for misreporting on income tax returns further reduces how much of NIPA personal 

income is included in IRS AGI. Offsetting this, some components of IRS AGI are not part of 

NIPA personal income (e.g., employee and self-employed contributions to social insurance, net 

gains from the sale of assets, taxable pensions). The methodological adjustments include

differences between NIPA accounting and income tax accounting (e.g., because of differences in 

 

9

See Table 1 and Table 2 in Ledbetter (2007). The gap reported by BEA included a misreporting adjustment in 

personal income. Without the misreporting adjustment, the gap between BEA-derived AGI and IRS AGI was 

between 14 percent and 15 percent of BEA-derived AGI in 2004 and 2005.

10 With the exception of employee contributions to employer-sponsored health insurance, we have complete data for 

all reconciliation items in Table 1 from 1993. Appendix A presents a reconciliation of NIPA compensation of 

employees and NIPA nonfarm proprietors’ income to their IRS AGI equivalents from 1960. We have complete data 

for most reconciliation items in the Appendix A tables, with the exception of employee contributions to employersponsored health insurance and a few other small reconciliation items.

11 IRS AGI in Table 1 can be found in Table 1.4 of Statistics of Income, Individual Income Tax Returns Publication 

1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-ReturnsPublication-1304-(Complete-Report). NIPA personal income in Table 1 can be found in line 1 of NIPA Table 2.1 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 28, 2014 

revision of NIPA Table 2.1.

12 See Table 1.4 in Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete Report), 

available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-(CompleteReport)#_sec4. Table 1A shows selected components of statutory adjustments over the 20-year period we consider. 

In 2012, the selected components account for over 98 percent or more of the total statutory adjustments.
14

the valuation of inventories and depreciation) for the income included in NIPA personal income 

and IRS AGI. They also include BEA imputed income in personal income. For NIPA personal 

income receipts on assets, imputed income in personal income includes imputed income from 

depositor services furnished to persons without payment. For NIPA rental income, imputed 

income in personal income includes imputed rental income from owner-occupied housing (net of 

subsidies). Such imputed income in personal income is not included in IRS AGI. We also do not 

include it in the baseline to which we compare the components of personal income that are 

excluded or deferred from tax.

Table 1B presents the sources of differences between NIPA personal income and a measure of 

the personal income tax base (‘BEA-derived current-income AGI’ in Table 1B) that is the 

difference between BEA-derived AGI and the portion of AGI not included in personal income.

BEA-derived current-income AGI has declined from 60.2 percent of NIPA personal income less 

methodological adjustments in 1993 to 56.8 percent in 2012 (see Panel B of Figure 1).

Concomitantly, the portion of NIPA personal income that is excluded from IRS AGI or deferred 

has generally increased, from 36.4 percent of NIPA personal income less methodological 

adjustments in 1993 to 39.1 percent in 2012 (see Panel A of Figure 1). BEA-derived AGI has 

generally fluctuated as a percent of NIPA personal income less methodological adjustments, 

equaling 72.2 percent in 1993 and 73.8 percent in 2012 (see Panel D of Figure 1). This is 

because the portion of IRS AGI that is not part of NIPA personal income has fluctuated but 

generally risen as a percent of NIPA personal income less methodological adjustments, from 

12.0 percent in 1993 to 17.0 percent in 2012 (see Panel C of Figure 1). This rise in the portion of 

IRS AGI that is not part of NIPA personal income is attributable to increases in net gains from 

the sale of assets, taxable pensions, and S-corporation income. Section III of the paper provides a 

detailed decomposition of the sources of these differences by type of income. 

Table 1C offers an alternative reorganization of Table 1. Table 1C derives a “net market income” 

by first subtracting from NIPA personal income less (select) methodological adjustments 

nontaxable personal current transfer receipts and then adding to the difference total contributions 

for government social insurance. It includes a separate category for business income adjustments. 

These business income adjustments incorporate an adjustment for misreporting on income tax 

returns, an adjustment for Non-schedule E partnership income, and an adjustment for Scorporation income.

13 In Table 1C, BEA-derived AGI increases from 74.7 percent of net market 

income in 1993 to 76.4 percent in 2012, a 1.7 percentage point increase that is comparable in 

magnitude to the 1.6 percentage point increase in BEA-derived AGI as a share of NIPA personal 

income less methodological adjustments in Table 1B. However, in Table 1C, the business 

income adjustments rise from 3.8 percent of net market income in 1993 to 6.9 percent in 2012. 

At the same time, the components of personal income excluded or deferred from tax change little 

as a percent of net market income, equaling 28.4 percent in 1993 and 28.2 percent in 2012. This 

is because in Table 1B nontaxable personal current transfer receipts account for 2.6 percentage 

 

13 The adjustment for S-corporation income is the difference between S-corporation dividends in personal income 

and S-corporation income. S-corporation dividends in personal income, S-corporation income, and Non-schedule E 

partnership income are discussed in greater detail in Section III.
15

points of the overall 2.7 percentage point increase in the components of personal income 

excluded or deferred as a share of NIPA personal income less methodological adjustments.

Decomposing 2012 BEA-derived current-income AGI by source—compensation of employees, 

proprietors’ income (nonfarm and farm), rental income, personal income receipts on assets 

(interest income and dividend income), taxable unemployment compensation and Social Security 

benefits, other personal income not in AGI, and AGI not in personal income—shows how much 

of each element of NIPA personal income is included in the tax base (see Table 1D and Table B1 

in Appendix B).

14 For instance, in 2012, about 80.8 percent of NIPA compensation of employees

less methodological adjustments is included in BEA-derived current-income AGI and thus 

included in the tax base (compensation of employees in Table 1D). Excluded forms of 

compensation, such as employer contributions to insurance funds and employee contributions to 

employer-provided health insurance, and deferred compensation, such as employer contributions 

for employee pension funds, account for much of the difference. Employer contributions for 

government social insurance, which are a portion of AGI not included in personal income,

reduce BEA-derived salaries and wages as a percent of NIPA compensation of employees less 

methodological adjustments, but to only about 75.5 percent.

15

Table 1D demonstrates that a much greater fraction of compensation of employees is included in 

the tax base than some other types of income. For example, BEA-derived current-income net 

income (less loss) of nonfarm and farm proprietorships and partnerships (proprietors’ income in 

Table 1D) is 52.0 percent of NIPA proprietors’ income less methodological adjustments. It is 

only roughly half of NIPA proprietors’ income less methodological adjustments because of 

adjustments for misreporting on income tax returns. 

Similarly, BEA-derived current-income taxable interest and dividend income (personal income 

receipts on assets in Table 1D) is only 22.6 percent of NIPA personal income receipts on assets

less methodological adjustments. It is about one-fifth of NIPA personal income receipts on assets 

in large part because the investment income of life insurance carriers and pension plans, the 

investment income received by nonprofit institutions or retained by fiduciaries, and tax exempt 

interest (primarily from state and local bonds) are excluded from tax. Overall, these three

components of personal income that are excluded or deferred from tax are 61.0 percent of NIPA 

personal income receipts on assets less methodological adjustments. Another 16.5 percent of 

NIPA personal income receipts on assets less methodological adjustments are accounted for by 

the earnings, excluding capital gains, of Individual Retirement Accounts (IRA) and Keogh plans. 

 

14 Other personal income not in AGI includes nontaxable personal current transfer receipts (government and 

business), statutory adjustments, and total contributions for government social insurance. AGI not in personal 

income includes net gains from the sale of assets, taxable pensions, S-corporation income, and other types of 

income. Table B1 in Appendix B provides a more detailed decomposition of 2012 BEA-derived current-income 

AGI by source.

15 In Table 1D, adding the negative of employer contributions for government social insurance (-$513.9 billion 

under compensation of employees) to total contributions for government social insurance ($951.2 billion under other 

personal income not in AGI) gives employee and self-employed contributions for government social insurance of 

$437.3 (under total).
16

Finally, how much of NIPA personal income is included in the tax base and the composition of 

NIPA personal income and BEA-derived AGI has changed over time. Table 1E summarizes the 

decomposition of NIPA personal income less methodological adjustments and BEA-derived AGI

by source in Table 1D for 1993, 1997, 2001, 2005, 2009, and 2012. The “other” category in 

Table 1E is the sum of taxable unemployment compensation and social security, other personal 

income not in AGI, and AGI not in personal income in Table 1D. Other personal income not in 

AGI includes nontaxable personal current transfer receipts (government and business), statutory 

adjustments, and total (employer and employee) contributions for government social insurance.

AGI not in personal income includes net gains from the sale of assets, taxable pensions, Scorporation income, and other types of income.

Between 1993 and 2012, compensation of employees has generally declined as a share of total 

NIPA personal income less methodological adjustments, from 70.1 percent in 1993 to 67.1 

percent in 2012. BEA-derived salaries and wages have similarly fallen as a share of total BEAderived AGI, from 75.0 percent in 1993 to 68.7 percent in 2012. At the same time, nonfarm 

proprietors’ income has risen as a share of total NIPA personal income less methodological 

adjustments, from 7.1 percent in 1993 to 8.3 percent in 2012. BEA-derived net income (less loss) 

of nonfarm proprietorships and partnerships has climbed from 5.0 percent of total BEA-derived 

AGI in 1993 to 5.6 percent in 2012. Looking at BEA-derived AGI by income source as a share 

of NIPA personal income less methodological adjustments by income source, both BEA-derived 

salaries and wages and BEA-derived net income (less loss) of nonfarm proprietorships and 

partnerships have slipped as a share of NIPA personal income less methodological adjustments 

over the last 20 years.

III. Detailed Reconciliation Analysis

Our reconciliation of NIPA personal income and IRS AGI is done by type of income. Table 1 in 

Section II is a summation of these individual reconciliations (Table 2 through Table 7, Table 8A 

and Table 8B, Table 9A and 9B) by type of income.

Compensation of Employees16

NIPA compensation of employees includes wage and salary disbursements and supplements to 

wages and salaries, specifically employer contributions for employee pension and insurance 

funds and employer contributions for government social insurance (see Table 2A). Employer 

contributions for pension and insurance funds, which include private pension plans and private 

group health insurance, and employer contributions for government social insurance (‘payroll tax 

adjustment’ in Table 2) are nontaxable and, thus, excluded from AGI. Table 2 removes the full 

value of these components of personal income so that their BEA-derived AGI is implicitly zero.

The reconciliation of NIPA compensation of employees to IRS salaries and wages consists of 

five primary reconciliation items related to wage and salary disbursements (see Table 2).

17 The 

 

16 Appendix A presents a reconciliation of NIPA compensation of employees to IRS salaries and wages that extends 

back to 1960. Table 2 presents a reconciliation that extends from 1993.

17 Table 1 in Robert L. Brown, et al. (2006), “The Feasibility of Producing Personal Income to Adjusted Gross 

Income (PI-AGI) Reconciliations by State,” Bureau of Economic Analysis (BEA) Working Paper WP2006-05, 
17

portion of personal income not included in AGI includes imputed income in personal income

from NIPA Table 7.12, specifically food furnished to employees, standard clothing issued to 

military personnel, and employees’ lodging (see Table 2B).

18 It also includes other personal 

income that is exempt or excluded from AGI.19 Among these other types of personal income are 

tax-exempt military pay and employee nontaxable contributions to the federal government’s 

Thrift Savings Plan (TSP) and to private defined contribution (401k/403b/408k) plans.20 The 

portion of AGI not included in personal income includes (under “other types of income”) the 

sum of supplemental unemployment insurance benefits (from NIPA Table 6.11C and NIPA 

Table 6.11D) and foreign-earned income of U.S. citizens living abroad for more than one year.

21

Tax-exempt military pay is calculated using three sources, U.S. General Accountability Office 

(GAO) studies of military compensation, the Defense Department’s Quadrennial Review of 

Military Compensation (QRMC), and budget materials from the Office of the Under Secretary of 

Defense (Comptroller). All three sources provide data on the components of total cash 

compensation, including basic pay, housing allowances, subsistence allowances, and other

allowances, for selected years.

22 We arrive at an imputed value for tax-exempt military pay by 

multiplying NIPA military wages and salaries (from NIPA Table 6.3C and NIPA Table 6.3D) by 

the ratio of housing, subsistence, and other allowances to total cash military compensation from 

the GAO/QRMC data and the Comptroller data.

23 For the years for which GAO/QRMC data are 

 

January, available at https://www.bea.gov/papers/pdf/PI-AGI.pdf, details the line items comprising the 

reconciliation of NIPA wage and salary disbursements with IRS salaries and wages.

18 See line 203 though line 205 in NIPA Table 7.12 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 6, 2014 

revision of NIPA Table 7.12.

19 Brown, et al. (2006) include nontaxable mass transit benefits under other personal income exempt or excluded 

from AGI. They indicate that BEA used national estimates of the federal government’s transit subsidy (from the 

Department of Transportation). For 2000, the tax-exempt mass transit benefit line item amounted to less than $50 

million (see Table 1 in Brown, et al. (2006)) We do not include an equivalent reconciliation line item in Table 1. 

20 For 1993 to 2009, data on employee nontaxable contributions to TSP are taken from the Employee Benefit 

Research Institute (EBRI) Databook, Table18.2a through Table 18.2c, available at 

http://www.ebri.org/publications/books/?fa=databook. For 2010 to 2012, they are taken from Financial Statements 

of Thrift Savings Fund, available at http://www.frtib.gov/ReadingRoom/FinStmts/TSP-FS-Dec2010.pdf, 

http://www.frtib.gov/ReadingRoom/FinStmts/TSP-FS-Dec2012.pdf, and 

https://www.tsp.gov/PDF/formspubs/financial-stmt.pdf. For 1993 to 2012, data on employee nontaxable 

contributions to private defined contribution plans are taken from Table A4 of U.S. Department of Labor, Private 

Pension Plan Bulletins Abstract of Form 5500 Annual Reports, available at 

https://www.dol.gov/agencies/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan. For 1984 to 

1992, employee nontaxable contributions to private defined contribution plans are based on tax expenditure data.

21 See line 42 in NIPA Table 6.11C and line 44 in NIPA Table 6.11D at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1 for data on supplemental 

unemployment insurance benefits. We used the August 5, 2014 revision of NIPA Table 6.11C and NIPA Table 

6.11D. Ledbetter (2004) and Brown et al. (2006) indicate that “other types of income” include supplemental 

unemployment insurance benefits and the income of U.S. citizens living abroad for more than one year. The foreignearned income of U.S. citizens living abroad consists mainly, but not exclusively, of wages and salaries. In Table 2, 

we include all foreign earned income, net of self-employment income reported on IRS Form 2555, as a 

reconciliation item for NIPA compensation of employees.

22 Ledbetter (2004) indicates that tax-exempt military pay should also include bonuses and special allowances for 

military personnel in combat zones. Such bonuses and allowances are omitted from our calculations.

23 See line 80 of NIPA Table 6.3C and line 90 of NIPA Table 6.3D at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 2014 
18

missing and Comptroller data are unavailable (1986 through 1989), we interpolate to obtain 

ratios of allowances to total cash military compensation. GAO/QRMC data are available for

1985, 1990 through 1997, 2000, 2004, 2006, and 2010.24 Comptroller data are available for every 

year between 1997 and 2012.25

The total foreign-earned income of U.S. citizens living abroad is calculated using data from the 

Statistics of Income (SOI). SOI provides data on total (from IRS Form 2555 and IRS Form 

2555EZ) foreign-earned income for 1996, 2001, 2006, and 2011; it provides data on foreignearned income on IRS Form 2555 for 1991, 1996, 2001, 2006, and 2011.

26 Foreign-earned

income on IRS Form 2555 includes wages and salaries, allowances, noncash income less

excludable meals and lodging, self-employment income (business and professional income (less 

losses) and partnership income (less losses)), and other foreign income. Values for total foreignearned income in the intervening years are obtained by growing total foreign-earned income at 

the same rate as total wages, salaries, bonuses, commissions, etc. reported on line 19 of Form 

2555. Values for total wages, salaries, bonuses, commissions, etc. are available from the 

Individual Statistics of Income Complete Report File for 1995 through 2012. Values for 1991

through 1994 are obtained by backcasting total wages, salaries, bonuses, commissions, etc. using 

data on the foreign-earned income exclusion and a time trend.27 Table 2 gives total foreign-

 

revisions of NIPA Table 6.3C and NIPA 6.3D. Wages and salaries in NIPA Table 6.3 include monetary 

remuneration of the military and in-kind compensation such as housing allowances. See BEA Frequently Asked 

Questions, “What is included in federal government employee compensation?”, available at 

http://www.bea.gov/faq/index.cfm?faq_id=553.

24 For fiscal year (FY) 2010 data, see Figure 2-1 (p. 17) of the U.S. Department of Defense (2012), Report of the 

Eleventh Quadrennial Review of Military Compensation: Main Report, June, available at 

http://militarypay.defense.gov/References/QRMC/. For FY 2006 data, see Table 3 (p. 41) of U.S. General 

Accountability Office (2007), Military Personnel: DOD Needs to Establish a Strategy and Improve Transparency 

over Reserve and National Guard Compensation to Manage Significant Growth in Cost, June, GAO-07-828, 

available at http://www.gao.gov/products/GAO-07-828. For FY year 2004 and FY 2000, see Table 2 (p. 19) of U.S. 

Government Accountability Office (2005), Military Personnel: DOD Needs to Improve the Transparency and 

Reassess the Reasonableness, Appropriateness, Affordability, and Sustainability of its Military Compensation 

System, July, GAO-05-798, available at http://www.gao.gov/new.items/d05798.pdf. For FY 1990 through FY 1997, 

see Appendix I and Appendix II (pp. 19-29) of U.S. General Accounting Office (1996), Defense Budget: Trends in 

Active Personnel Compensation Accounts for 1990-97, July, GAO/NSIAD-96-183, available at 

http://www.gao.gov/products/NSIAD-96-183. For FY 1985, see Appendix IV (pp. 33-40) of U.S. General 

Accounting Office (1986), Military Compensation: Comparisons with Civilian Compensation and Related Issues, 

June, NSIAD-86-131BR, available at http://www.gao.gov/assets/80/75436.pdf.

25 Budget materials from the Under Secretary of Defense (Comptroller) are available at 

http://comptroller.defense.gov/BudgetMaterials.aspx. Select the files associated with “Military Personnel Programs 

(M-1)” for FY 1999 through FY 2016.

26 See Table 1 (Individual Income Tax Returns with Form 2555: Source of Income, Deduction, Tax Items, and 

Foreign-earned Income and Exclusions) from Statistics of Income, SOI Tax Stats-Individual Foreign Earned

Income/Foreign Tax Credit, available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Foreign-Earned-IncomeForeign-Tax-Credit. We obtain an estimate of total foreign-earned income for 1991 by grossing up 1991 foreignearned income on Form 2555 only by one minus the 1996 ratio of Form 2555EZ foreign-earned income to total 

foreign-earned income.

27 Data on the foreign-earned income exclusion is available from Table 1.4 in Statistics of Income, Individual 

Income Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-StatsIndividual-Income-Tax-Returns-Publication-1304-(Complete-Report)#_sec4.
19

earned income of U.S. citizens living abroad minus self-employment income on Form 2555.

Table 3 gives self-employment income on Form 2555.28

For the years between 1993 and 2012, the difference between our measure of BEA-derived 

salaries and wages and IRS salaries and wages ranges from a minimum of 1.7 percent of BEAderived salaries and wages in 1993 to a maximum of 4.2 percent of BEA-derived salaries and 

wages in 2003.

29 It averages 2.9 percent of BEA-derived salaries and wages. Excluding data on

employee contributions to employer-sponsored health insurance, which are not among the 

reconciliation items included in the discontinued NIPA Table 7.19, increases the discrepancy.

But the average difference between our measure of BEA-derived salaries and wages and IRS 

salaries and wages is still less than 6 percent of BEA-derived salaries and wages over the 20-year 

period.

Data on employee contributions to employer-sponsored health insurance for 2004 to 2013 are 

from a special tabulation done by the Office of the Actuary in the Center for Medicare and 

Medicaid Services, the group that creates the National Health Expenditure Accounts.

30 We 

backcast to 1993 total (employer and employee) premiums for employer-sponsored health 

insurance from this special tabulation using NIPA data on employer contributions to private 

group health insurance.

31 We then use data from the special tabulation to calculate the ratio of 

employee contributions to total premiums for employer-sponsored health insurance from 2004 to 

2012. We apply the 2004 ratio to our backcast total contributions for 1993 through 2003. A 2014

Kaiser Family Foundation survey of employer health benefits gives average percentages of 

premiums for employer-sponsored health insurance paid by workers for single coverage and 

family coverage from 1999 to 2014.32 The overall levels of the average percentages from the

Kaiser Family Foundation survey are roughly comparable to ratios calculated using data from the 

special tabulation. Using the Kaiser Family Foundation survey data, the weighted average of the 

 

28 Table 1 (Individual Income Tax Returns with Form 2555: Source of Income, Deduction, Tax Items, and Foreignearned Income and Exclusions) from Statistics of Income, SOI Tax Stats-Individual Foreign Earned Income/Foreign 

Tax Credit, available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Foreign-Earned-Income-Foreign-TaxCredit, provides data on business and professional income (less losses) and partnership income (less losses) on IRS 

Form 2555 for 1991, 1996, 2001, 2006, and 2011. Values for the intervening years are obtained using a linear 

interpolation.

29 IRS salaries and wages in Table 2 can be found in Table 1.4 of Statistics of Income, Individual Income Tax 

Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-IncomeTax-Returns-Publication-1304-(Complete-Report). NIPA wage and salary disbursements in Table 2 can be found in 

line 3 of NIPA Table 2.1 at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We 

used the August 28, 2014 revision of NIPA Table 2.1.

30 National Health Expenditure (NHE) Accounts projections of total premiums (employer plus employee 

contributions) for employer-sponsored health insurance are available in Table 17 of the NHE Projections 2012-2022 

Forecast Summary, available at https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-andreports/nationalhealthexpenddata/downloads/proj2012.pdf.

31 See line 17 in NIPA Table 7.8 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.8.

32 See Exhibit 6.1 (p. 85), Exhibit 6.3 (p. 87), and Exhibit 6.4 (p. 88) of Kaiser Family Foundation and Health 

Research & Educational Trust (2014), Employer Health Benefits 2014 Annual Survey, available at 

https://kaiserfamilyfoundation.files.wordpress.com/2014/09/8625-employer-health-benefits-2014-annualsurvey6.pdf.
20

average percentages of premiums for employer-sponsored health insurance paid by workers with 

single coverage and family coverage falls by about 1.1 percentage point from 2004 to 1999.

Implications for Income Subject to Tax

Table 2C reorganizes Table 2 to help clarify how much of NIPA compensation of employees is 

paid out in salaries and wages that are subject to tax. The first section of Table 2C subtracts from 

NIPA compensation of employees imputed income in personal income. The second section 

subtracts from NIPA compensation of employees less imputed income a net measure of

employer contributions to pension and insurance funds and government social insurance. In 

2012, employer contributions to pension funds account for 5.6 percent of NIPA compensation of 

employees less imputed income while employer contributions to insurance funds account for 

another 7.9 percent. Other deferred or untaxed components of NIPA compensation of employees

account for 5.7 percent. Overall, in 2012, BEA-derived salaries and wages (excluding the 

foreign-earned income of U.S. citizens living abroad for more than one year) are 74.8 percent of 

NIPA compensation of employees less imputed income; they average 76.4 percent of NIPA 

compensation of employees less imputed income between 1993 and 2012. 

Between 1993 and 2012, net employer contributions to pension funds change little as a percent 

of NIPA compensation of employees less imputed income. Net employer contributions to 

insurance funds rise slightly from 7.7 percent to 7.9 percent, reflecting an increase in net 

employer contributions to private group health insurance from 6.1 percent of NIPA 

compensation of employees less imputed income in 1993 to 7 percent in 2012. Other deferred or 

untaxed components of NIPA compensation of employees also increase, from 3.9 percent of 

NIPA compensation of employees less imputed income in 1993 to 5.7 percent in 2012.

Nonfarm Proprietors’ Income33

The reconciliation of NIPA nonfarm proprietors’ income to the IRS net income (less loss) of

business and professions (nonfarm proprietorships) and partnerships is based largely on NIPA 

Table 7.14.34 It consists of six reconciliation items (see Table 3). The portion of AGI not 

included in personal income (under “other types of income”) takes account of foreign-earned 

self-employment income (business and professional income (less losses) and partnership income 

 

33 Appendix A presents a reconciliation of NIPA nonfarm proprietors’ income to IRS net income (less loss) of 

business and professions (nonfarm proprietorships) and partnerships that extends back to 1960. Table 3 presents a 

reconciliation that extends from 1993.

34 See line 1 though line 11 in NIPA Table 7.14 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.14. The IRS net income (less loss) of business and professions can be obtained from Table 

1.4 of Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete Report), available at 

http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-(Complete-Report), by 

subtracting business and profession net income from business and profession net loss. Table 1.4 also includes 

partnership and S-corporation net income and net loss. Partnership net income (less loss) is obtained by subtracting 

from the published aggregate for partnerships and S-corporations S-corporation income (less loss). S-corporation 

income (less loss) is the sum of S-corporation nonpassive and passive income (less loss) from Part II of Schedule E 

of IRS Form 1040. S-corporation nonpassive income (less loss) is obtained by subtracting from nonpassive Scorporation income S-corporation Section 179 expense deductions and S-corporation nonpassive losses. Schedule E 

data are from the Individual Statistics of Income Complete Report File.
21

(less losses)) reported on IRS Form 2555.35 The portion of personal income not included in AGI 

takes account of both investment income received by fiduciaries (line 7 in NIPA Table 7.14) and 

investment income received by tax-exempt cooperatives (line 8 of NIPA Table 7.14). It also 

includes net differences in accounting treatment between NIPA and tax regulations. Ledbetter 

(2004) indicates that differences between NIPA accounting and income tax accounting for the 

income included in NIPA personal income and IRS AGI arise in part because of differences in 

the valuation of inventories and depreciation. As such, Table 3 includes an inventory valuation 

adjustment (from NIPA Table 6.14C and NIPA Table 6.14D).

36 It also includes a capital 

consumption adjustment (from NIPA Table 7.6).

37

Table 3 consolidates a number of other adjustments from NIPA Table 7.14 under the heading 

nonfarm proprietors’ income (see Table 3A). Those adjustments include post-tabulation 

amendments and revisions (line 3 in NIPA Table 7.14), depletion of domestic minerals (line 4 

NIPA Table 7.14), an adjustment to depreciate expenditures for mining exploration, shafts, and 

wells (line 5 in NIPA Table 7.14), bad debt expense (line 6 in NIPA Table 7.14), an adjustment 

to depreciate expenditures for intellectual property products (line 9 NIPA Table 7.14), and a net 

disaster adjustment (line 10 in NIPA Table 7.14). All of these adjustments have counterparts in 

NIPA Table 7.16, which is the reconciliation of NIPA (corporate) profits before taxes with IRS 

total (corporate) receipts less total (corporate) deductions.

38 They are described in greater detail 

in Chapter 11 and Chapter 13 of the BEA NIPA Handbook.

39

 In NIPA Table 7.14, post-tabulation amendments and revisions account for several 

adjustments to IRS net profit (less loss) of nonfarm proprietorships and partnerships, plus 

payments to partners, including adjustments for portfolio interest (for interest received by 

financial partnerships), corporate partners net interest (reflecting the inclusion of corporate 

partnership income in corporate profits and not nonfarm proprietors’ income), double 

counting (for interest received by partnerships from other partnerships), meals and 

 

35 Park (2000) indicates that a small amount of AGI from abroad is included in the reconciliation of NIPA nonfarm 

proprietors’ income to IRS net income (less loss) of business and professions (nonfarm proprietorships) and 

partnerships. See Thae S. Park (2000), “Comparison of BEA Estimates of Personal Income and IRS Estimates of 

Adjusted Gross Income,” Survey of Current Business, February, pp. 12-22, available at 

http://www.bea.gov/scb/pdf/NATIONAL/NIPAREL/2000/0200agi.pdf.

36 See line 15 in NIPA Table 6.14C and line 14 in NIPA Table 6.14D at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 7, 2013 

revision of NIPA Table 6.14C and the August 5, 2014 revision of NIPA Table 6.14D.

37 See line 16 in NIPA Table 7.6 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.6.

38 See Table 7.16 (Relation of Corporate Profits, Taxes, and Dividends in the National Income and Product 

Accounts to Corresponding Measures as Published by the Internal Revenue Service) at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1.

39 See pp. 11-15 through 11-20 in Chapter 11 (Nonfarm Proprietors’ Income) and pp. 13-22 through 13-31 in 

Chapter 13 (Corporate Profits) of U.S. Bureau of Economic Analysis (2015), NIPA Handbook: Concepts and 

Methods of the U.S. National Income and Product Accounts, available at 

http://www.bea.gov/methodologies/index.htm#national_meth.
22

entertainment, and foreign distributions (removing from partnership income any income that 

is from a foreign source).

40

 BEA includes an adjustment for the depletion of domestic minerals to remove depletion as an

expense when calculating NIPA nonfarm proprietors’ income. It does so because depletion is 

not considered capital formation in the NIPA.

 Expenditures for mining exploration, shafts, and wells are considered to be capital formation 

in the NIPA and current expenses for tax purposes. In NIPA Table 7.14, the adjustment to 

depreciate expenditures for mining exploration, shafts, and wells removes the expensed part 

of the investment from IRS net profit (less loss) of nonfarm proprietorships and partnerships, 

plus payments to partners, but adds depreciation charges for investments made in current and 

previous years.

 BEA removes bad debts as a deduction when calculating NIPA nonfarm proprietors’ income.

 Intellectual property products (IPP) include software (prepackaged, own-account, and 

custom), research and development (manufacturing and nonmanufacturing/service types), 

and artistic originals (music, movies, long-lived television programs, etc.). BEA includes an 

adjustment to depreciate expenditures for intellectual property products because expenditures 

for IPP are considered capital formation in the NIPA but are at least in part expensed for tax 

purposes. In NIPA Table 7.14, the adjustment to depreciate expenditures for IPP removes the 

expensed part of the investment from IRS net profit (less loss) of nonfarm proprietorships 

and partnerships, plus payments to partners, but adds depreciation charges for investments 

made in current and previous years.

 The net disaster adjustment consists of two parts: the net of the value of losses recorded as 

depreciation and the payouts made by insurance companies. In the NIPA, the loss of capital 

and insurance payouts resulting from a catastrophic event do not affect income associated 

with current production.

Two additional adjustments that are not among the reconciliation items included in the 

discontinued NIPA Table 7.19 are introduced into Table 3 to reduce the difference between 

BEA-derived AGI and IRS AGI. They are Non-schedule E partnership income and adjustments 

for misreporting on income tax returns (line 2 in NIPA Table 7.14). With these two adjustments, 

for the years between 1993 and 2012, the difference between our BEA-derived net income (less 

loss) of nonfarm proprietorships and partnerships and IRS net income (less loss) of nonfarm 

proprietorships and partnerships is 2 percent or less of BEA-derived net income (less loss) of 

nonfarm proprietorships and partnerships.

The adjustment for Non-schedule E partnership income is methodological. Non-schedule E 

partnership income is included as a reconciliation item because NIPA Table 7.14 reconciles 

NIPA nonfarm proprietors’ income to the net profit (less loss) of nonfarm proprietorships and 

partnerships, plus payments to partners. The net profit (less loss) of nonfarm proprietorships and 

partnerships, plus payments to partners, exceeds IRS net income (less loss) of nonfarm 

proprietorships (from IRS Form 1140 Schedule C) and partnerships (from IRS Form 1140

Schedule E). An adjustment is calculated by taking the difference between the net profit (less 

 

40 For a description of each adjustment, see Table 11.4 (pp. 11-16 and 11-17) in BEA (2015).
23

loss) of nonfarm proprietorships and partnerships, plus payments to partners, in NIPA Table 7.14

and IRS net income (less loss) of nonfarm proprietorships and partnerships in Table 3.

Implications for Income Subject to Tax

Table 3B reorganizes Table 3 to help clarify how much of NIPA nonfarm proprietors’ income is

subject to tax. The first section of Table 3B subtracts from NIPA nonfarm proprietors’ income all 

net differences in the accounting treatment between NIPA and tax regulations; it also subtracts 

the adjustment for Non-schedule E partnership income. The second section subtracts from NIPA 

nonfarm proprietors’ income less methodological adjustments deferred or untaxed components 

of NIPA nonfarm proprietors’ income. In Table 3B, these components are not large. However, in 

every year between 1993 and 2012, adjustments for misreporting on income tax returns are 

roughly 50 percent or more of NIPA nonfarm proprietors’ income less methodological 

adjustments; they average 53 percent. Over the same period, BEA-derived net income (less loss) 

of nonfarm proprietorships and partnerships averages 46.6 percent of NIPA nonfarm proprietors’ 

income less methodological adjustments.

Table 3C is similar to Table 3B. However, Table 3C adds to NIPA nonfarm proprietors’ income 

S-corporation dividends in personal income to ask how much of non-C-corporation income is 

subject to tax.41 The methodological adjustments in the first section of Table 3C include only net 

differences in accounting treatment between NIPA accounting and income tax accounting for the 

income included in NIPA nonfarm proprietors’ income. The adjustment for Non-schedule E 

partnership income is now in the second section of Table 3C. The second section of Table 3C

subtracts from S-corporation dividends in personal income and NIPA nonfarm proprietors’ 

income less methodological adjustments deferred or untaxed components of NIPA nonfarm 

proprietors’ income and adjustments for misreporting on income tax returns. It also subtracts

several statutory adjustments associated with self-employment. Table 3C omits an adjustment for 

foreign-earned self-employment income. Between 1993 and 2012, S-corporation income and 

BEA-derived net income (less loss) of nonfarm proprietorships and partnerships (domestic) has 

fallen from 50.2 percent of S-corporation dividends in personal income and NIPA nonfarm 

proprietors’ income less methodological adjustments to 44.4 percent, a decline of 5.8 percentage 

points.

Farm Proprietors’ Income

The reconciliation of NIPA farm proprietors’ income to IRS net income (less loss) of farms

consists of five reconciliation items (see Table 4). All six reconciliation items are components of 

the portion of personal income not included in AGI. All but one reconciliation item, imputed 

income in personal income (from NIPA Table 7.12) from farm products consumed on farms, are 

components of the net difference in accounting treatment between NIPA and tax regulations.

42

 

41 S-corporation dividends in personal income is the sum of total property distributions, including cash, other than 

dividends and total dividend distributions paid from accumulated earnings and profits on Schedule K of IRS Form 

1120S. See the sub-section (later in Section III) on personal income receipts on assets for more details.

42 See line 199 in NIPA Table 7.12 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 6, 2014 

revision of NIPA Table 7.12.
24

Brown, et al. (2006) include among the differences in accounting treatment between sole 

proprietorship income and tax regulations for farm proprietorships an excess change in farm 

inventories, excess tax depreciation, a capital consumption adjustment, and Section 1231 (net)

capital gains from the sale of livestock. We add an adjustment (under the heading farm 

proprietors’ income) for farm housing expenses excluding depreciation. The capital consumption 

adjustment is taken from NIPA Table 7.6.43 The adjustment for farm housing expenses is taken 

from NIPA Table 7.15.44 In NIPA Table 7.15, BEA adds farm housing expenses excluding 

depreciation (among other line items) to U.S. Department of Agriculture (USDA) net farm 

income to arrive at NIPA farm proprietors’ income.

In NIPA Table 7.15, BEA also adds the change in farm materials and supplies inventories to 

USDA net farm income to arrive at NIPA farm proprietors’ income. Brown, et al. (2006) define 

the excess change of farm inventories as the IRS change in farm inventories minus the BEA 

change in farm inventories. NIPA Table 5.7.5B gives the BEA change in farm inventories.45

However, calculating the change in IRS farm inventories is complicated because Schedule F of 

IRS Form 1040 includes lines for farm inventories of livestock, produce, grains, and other 

products (lines 45-48) but the Individual Statistics of Income Complete Report File contains no 

corresponding variables. Line 6 in NIPA Table 7.15 and line 13 in NIPA Table 7.3.5 give the

change in farm materials and supplies inventories.46 Line 7 in NIPA Table 7.3.5 also gives the

change in farm finished goods inventories. Table 4 uses the sum of line 13 and line 7 in NIPA 

Table 7.3.5 in place of a calculation of excess farm inventories.

Brown, et al. (2006) do not explain why two capital-consumption-related items—the capital 

consumption adjustment (from NIPA Table 7.6) and excess tax depreciation—are included in the 

reconciliation of NIPA farm proprietors’ income to IRS net income (less loss) of farms.

However, for nonfarm proprietorships, the accounting difference between NIPA depreciation and 

IRS depreciation is fully accounted for by the capital consumption adjustment because for 

nonfarm proprietorships the starting point for NIPA depreciation is IRS depreciation.47 For farm 

proprietors’ income, the starting point for NIPA depreciation is not IRS depreciation. Rather 

BEA’s measure of farm proprietors’ depreciation is estimated using USDA source data.

 

43 See line 15 in NIPA Table 7.6 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.6.

44 See line 3 in NIPA Table 7.15 (Relation of Net Farm Income in the National Income and Product Accounts to Net 

Farm Income as Published by the U.S. Department of Agriculture) at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We omit two additional line 

items in NIPA Table 7.15 that BEA adds to USDA net farm income to obtain NIPA farm proprietors’ income. Those 

line items are monetary interest received by farm corporations and a valuation adjustment for Commodity Credit 

Corporation loans. We used the August 5, 2014 revision of NIPA Table 7.15.

45 See line 2 in NIPA Table 5.7.5B at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1.

46 See NIPA Table 7.3.5 (Farm Sector Output, Gross Value Added, and Net Value Added) at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.3.5.

47 Email from Pamela Kelly (forwarded by Adam Looney) on August 25, 2014.
25

As a result, for farm proprietors’ income, the capital consumption adjustment does not include 

two conversions. For nonfarm proprietors’ income, the capital consumption adjustment includes

a conversion of “inconsistent” IRS depreciation based on service lives and depreciation 

schedules that vary over time to “consistent” BEA depreciation based on economic service lives 

and depreciation rates that are constant. The result is a historical cost series with “consistent” 

accounting. The capital consumption adjustment also includes a conversion of the historical cost 

series with “consistent” accounting to current replacement cost. For farm proprietors’ income, 

the capital consumption adjustment reflects only this second conversion. Communication with

BEA indicates that USDA depreciation can be used as an estimate of a consistent accounting 

basis for depreciation at historical cost. Thus, for farm proprietorships, we define excess tax 

depreciation as the difference between IRS farm depreciation and USDA farm depreciation.

For Table 4, excess tax depreciation is calculated by subtracting the sum of sole proprietorship 

and partnership IRS farm depreciation from noncorporate USDA farm depreciation. USDA farm 

depreciation is taken from line 2 of NIPA Table 7.15. A noncorporate component of USDA farm 

depreciation is obtained by multiplying USDA farm depreciation by the ratio of sole 

proprietorship and partnership IRS farm depreciation to total IRS farm depreciation. Sole 

proprietorship IRS farm depreciation is taken from line 14 of Schedule F of IRS Form 1040.48

Partnership IRS farm depreciation is taken from the Statistics of Income partnership statistics.49

Total IRS farm depreciation is obtained by adding corporate IRS farm depreciation (Scorporation and C-corporation) to sole proprietorship and partnership IRS farm depreciation.50

Finally, Section 1231 property is property used in trade or business. It includes livestock held for 

draft, breeding, dairy, and sport purposes.

51 Net gains from the sale of such livestock are 

included in USDA net farm income and, hence, NIPA farm proprietors’ income but are excluded 

from IRS net income (less loss) of farms. This is because the net gains are not reported on 

Schedule F of IRS Form 1040 but instead on IRS Form 4797 (Sales of Business Property).

52 A 

1993 U.S. GAO report indicates that for 1981 BEA in part reconciles NIPA farm proprietors’ 

 

48 A variable for Schedule F farm depreciation and Section 179 expense is available on the Individual Statistics of 

Income Complete Report File from 1990.

49 See Table 1 (All Partnerships, Data Presented: Total Assets, Trade or Business Income and Deductions, Portfolio 

Income, Rental Income, and Total Net Income) of Statistics of Income, Partnership Statistics by Sector or Industry, 

available at http://www.irs.gov/uac/SOI-Tax-Stats-Partnership-Statistics-by-Sector-or-Industry. Table 1 is available 

from 1993. Farm partnership depreciation is the sum of depreciation in crop production and animal production.

50 For 1998 to 2011, corporate IRS agricultural production (farm) depreciation is obtained from Table 6 (Returns of 

Active Corporations: Balance Sheet, Income Statement, Tax, and Selected Other Items, by Major Industry) of 

Statistics of Income, Corporation Complete Report, available at http://www.irs.gov/uac/SOI-Tax-Stats-CorporationComplete-Report. For 1993 through 1997, corporate IRS farm depreciation is obtained from Statistics of Income, 

Corporation Source Book: Balance Sheet, Income Statement, Tax, and Selected Items by Major and Minor 

Industries, Size of Assets. We use tables for the returns of active corporations with or without net income.

51 See Chapter 3 of Internal Revenue Service, Sales and Other Disposition of Assets, Publication 544, available at 

http://www.irs.gov/pub/irs-pdf/p544.pdf.

52 USDA net farm income data are available at http://www.ers.usda.gov/data-products/farm-income-and-wealthstatistics/us-and-state-level-farm-income-and-wealth-statistics-(includes-the-us-farm-income-forecast-for2015).aspx. Click on the link for value added by U.S. agriculture. USDA net farm income is the sum of cash receipts 

(which include the value of livestock and crop cash receipts), direct government payments, farm-related income 

(which includes forest products sold as well as machine hire and custom work), nonmoney income (which includes 

the gross imputed rental value of farm dwellings), and an inventory adjustment minus total expenses.
26

income with IRS net farm income by reducing NIPA farm proprietors’ income by $2.7 billion for 

net gains from the sale of livestock. The $2.7 billion net gain for 1981 cited in the U.S. GAO 

report matches published SOI sales of capital assets (SOCA) data for sales of livestock as 

business property.53 SOCA data for sales of livestock for subsequent years are available from

SOI.54 We use a linear interpolation of the ratio of the net gain from the sale of livestock to the 

USDA value of livestock (and products) cash receipts to obtain a net gain for years for which 

SOCA data are unavailable.55

Between 1993 and 2012, the differences between our BEA-derived net income (less loss) of 

farms and IRS net income (less loss) of farms are substantial.56 However, the differences as a 

share of BEA-derived net income (less loss) of farms are comparable to what BEA has reported 

for various years in the Survey of Current Business. For example, for 2000, the BEA “relative 

AGI gap” (i.e., the difference between BEA-derived AGI and IRS AGI as a percent of BEAderived AGI) for farm proprietors’ income was 174.1 percent; for 2001, it was 219.9 percent.57

For 2004, the BEA relative AGI gap was 279.3 percent; for 2005, it was 182.7 percent.58 In

Table 4, the difference between our BEA-derived net income (less loss) of farms and IRS net 

income (less loss) of farms as a share of BEA-derived net income (less loss) of farms ranges 

between 108.8 percent and 195.9 percent.

The relative AGI gap is so large and persistent for farm proprietors’ income in part because IRS 

and USDA develop net farm income data using two different sample populations (GAO (1993)).

Specifically, IRS net income (less loss) of farms in Table 4 is calculated using data from

individuals and partnerships that report farm income and expenses on Schedule F of IRS Form 

1040. USDA net farm income, on which NIPA farm proprietors’ income relies, is calculated 

using farm establishment production, price, income, and expenditure data from the National 

Agricultural Statistics Service (NASS), the annual Agricultural Resource Management Survey 

(ARMS) Phase III, and the Farm Service Agency Commodity Credit Corporation (CCC).

59

ARMS data as an example cover a population of all farms in the 48 contiguous states that meet 

the official USDA definition of a farm, or all establishments that have sold or would normally 

have sold at least $1000 of agricultural products during the previous year. These farm 

establishments include traditional agricultural farms and ranching operations as well as specialty 

 

53 See Table 1 on page 84 of Bobby Clark and David Paris (1986), "Sales of Capital Assets, 1981 and 1982," SOI 

Bulletin, Winter, pp. 65-89, available at http://www.irs.gov/pub/irs-soi/81-82socassets.pdf.

54 SOI SOCA data are available at http://www.irs.gov/uac/SOI-Tax-Stats-Sales-of-Capital-Assets-Reported-onIndividual-Tax-Returns. See Table 1A, Short-term and Long-term Capital Gains and Losses by Asset Type.

55 SOCA data are available for 1981, 1985, 1997-99, and 2007-09.

56 IRS net income (less loss) of farms in Table 4 can be found in Table 1.4 of Statistics of Income, Individual 

Income Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-StatsIndividual-Income-Tax-Returns-Publication-1304-(Complete-Report). NIPA farm proprietors’ income in Table 4 

can be found in line 10 of NIPA Table 2.1 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 28, 2014 

revision of NIPA Table 2.1.

57 See Table 2 and Table 3 in Ledbetter (2004).

58 See Table 1 and Table 2 in Ledbetter (2007).

59 See U.S. Department of Agriculture, Economic Research Service, “General Documentation: Current Data Sources 

for Farm Income and Expenditure Estimates 2009-12,” available at http://www.ers.usda.gov/data-products/farmincome-and-wealth-statistics/general-documentation.aspx.
27

farms.60 In contrast, the IRS data include tax filers with less than $1000 in farms sales. They omit

farms with annual farm-related sales in excess of $1000 if a federal tax return is not filed.

Finally, GAO (1993) notes that IRS reported in 1988 that IRS net farm income figures are

understated as a result of misreporting of tax items.

Rental Income of Persons

The reconciliation of NIPA rental income of persons to IRS total rental and royalty net income 

(less loss) consists of six reconciliation items (see Table 5). All six reconciliation items are 

components of the portion of personal income not included in AGI and are thus subtracted from 

NIPA rental income.

61 The imputed rental income of persons in personal income from owneroccupied housing (net of subsidies) is taken from NIPA Table 7.12.

62 The rental income of 

private employee pension funds imputed to persons (investment income of pension plans in 

Table 5) is taken from NIPA Table 7.9.63 The rental income from tenant-occupied housing 

owned by nonprofit institutions (investment income received by nonprofits institutions in Table 

5) is also taken from NIPA Table 7.9.64 Table 6 in Brown, et al. (2006) gives three additional

reconciliation items, rental income retained by fiduciaries, excess tax depreciation, and a rental 

income capital consumption adjustment. The rental income capital consumption adjustment is 

taken from NIPA Table 7.6.65

We use IRS Form 1041 (U.S. Income Tax Return for Estates and Trusts) data to determine

values for not just the rent and royalty income retained by fiduciaries but also the interest income

(taxable and nontaxable) and dividend income (ordinary) retained by fiduciaries. SOI fiduciary 

return data are available for only select tax years (1997 and 2000 through 2012).

66 In addition, 

 

60 For a description of the 2013 ARMS statistical methodology, see pages 44-47 of U.S. Department of Agriculture, 

National Agricultural Statistics Service (2014), “Farm Production Expenditures 2013 Summary,” August, available 

at http://usda.mannlib.cornell.edu/usda/nass/FarmProdEx//2010s/2014/FarmProdEx-08-01-2014.pdf.

61 Brown, et al. (2006) also include a reconciliation item for the special assessments that local governments impose 

on business property owners to cover the costs of public improvements. They classify the reconciliation item as a 

component of the portion of AGI not included in personal income (under other types of income). Table 4 in Brown, 

et al. (2006) includes a similar adjustment in the reconciliation of NIPA nonfarm proprietors’ income to IRS net 

income (less loss) of nonfarm proprietorships and partnerships. The adjustment is small for both NIPA nonfarm 

proprietors’ income and NIPA rental income. We omit it in our reconciliations of both types of NIPA personal 

income.

62 Subtract line 158 (subsidies) from line 163 (rental income of persons with capital consumption adjustment) in 

NIPA Table 7.12 at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used 

the August 6, 2014 revision of NIPA Table 7.12.

63 See line 7 NIPA Table 7.9 at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. 

We used the August 5, 2014 revision of NIPA Table 7.9.

64 See line 14 in NIPA Table 7.9.

65 See line 20 in NIPA Table 7.6 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.6.

66 See Table 1 (Fiduciary Income Tax Returns, Income Source, Deductions, and Tax Liability, by Tax Status and 

Size of Total Income) from Statistics of Income, Income from Estates and Trust Statistics, available at 

http://www.irs.gov/uac/SOI-Tax-Stats-Income-from-Estates-and-Trusts-Statistics. Table 1 is available for filing 

years 1998 and 2001 through 2013. Filing years 1998 and 2001 through 2013 correspond to tax years 1997 and 2000 

through 2012, with estates and trusts filing income tax returns primarily for income earned in the previous year. For 

an explanation, see Lisa Schreiber (2005), “Fiduciary Income Tax Returns, Filing Years 2003 and 2004,” Statistics 
28

SOI publishes only an aggregate “rents, royalties, partnerships, other estate and trusts, etc.” 

income from IRS Form 1041. We use year-over-year growth rates calculated from SOI data for

total rental and royalty net income (less loss), partnership income, and estate and trust income;

interest income; and dividend income from IRS Form 1040 to obtain missing values for the three 

types of fiduciary income.67 We then use shares calculated from SOI data for total rental and 

royalty net income (less loss), partnership income, and estate and trust income from IRS Form 

1040 to obtain a value for just rents and royalties retained by fiduciaries.

68

Brown, et al. (2006) suggest that excess tax depreciation in the case of NIPA rental income is the 

difference between relevant BEA and IRS measures of depreciation. For Table 5, we define the

BEA measure of depreciation as the sum of BEA current-cost depreciation for the tenantoccupied residential fixed assets of households and sole proprietorships and partnerships as well 

as the noncorporate part of the current-cost depreciation of private nonresidential fixed assets

(equipment and structures) in the real estate sector (North American Industry Classification 

System (NAICS) sector 531).

69

The noncorporate component of the current-cost depreciation of NAICS sector 531 is calculated 

by multiplying the BEA NAICS sector 531 current-cost depreciation of private nonresidential 

fixed assets by the ratio of sole proprietorship and partnership IRS depreciation in NAICS sector 

531 to total IRS depreciation in NAICS sector 531. Sole proprietorship IRS depreciation in 

NAICS sector 531 is taken from SOI nonfarm sole proprietorship statistics.

70 Partnership IRS 

depreciation in NAICS sector 531 is taken from SOI partnership statistics.71 Total IRS 

depreciation in NAICS sector 531 is obtained by adding corporate IRS depreciation (S-

 

of Income Bulletin, Fall, pp. 130-161, available at http://www.irs.gov/pub/irs-soi/04fidart.pdf. Fiduciary income tax 

return data for 1982 is available from Table 1 and Table 2 of Gary J. Estep (1985), “Fiduciary Income Tax Returns, 

1982,” Statistics of Income Bulletin, Spring, pp. 39-59, available at http://www.irs.gov/pub/irs-soi/82fiintr.pdf.

67 IRS total rental and royalty net income (less loss), interest income, and dividend income from Form 1040 can be 

found in Table 1.4 of Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete Report), 

available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-(CompleteReport).

68 IRS estate and trust income from Form 1040 can be found in Table 1.4 of Statistics of Income, Individual Income 

Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-IndividualIncome-Tax-Returns-Publication-1304-(Complete-Report). Table 1.4 also includes partnership and S-corporation 

net income (less loss). Partnership net income (less loss) is obtained by subtracting from the published aggregate for 

partnerships and S-corporations S-corporation income (less loss). S-corporation income (less loss) is obtained by 

summing S-corporation nonpassive and passive income (less loss) from Part II of Schedule E of IRS Form 1040. 

Schedule E data are from the Individual Statistics of Income Complete Report File.

69 For BEA’s detailed current-cost depreciation data for residential and nonresidential fixed assets, see U.S. Bureau 

of Economic Analysis, “Detailed Data for Fixed Assets and Consumer Goods,” available at 

http://www.bea.gov/national/FA2004/Details/Index.htm. For the detailed residential data, download 

‘detailresidential.xlsx’; for the detailed nonresidential data, download ‘detailnonres_dep1.xlsx’. We used the 

detailed fixed asset data updated on September 17, 2014.

70 See Table 1 (Nonfarm Sole Proprietorships: Business Receipts, Selected Deductions, Payroll, and Net Income, by 

Industrial Sectors), of Statistics of Income, Nonfarm Sole Proprietorship Statistics, available at 

http://www.irs.gov/uac/SOI-Tax-Stats-Nonfarm-Sole-Proprietorship-Statistics. Table 1 is available from 1996.

71 See Table 1 (All Partnerships, Data Presented: Total Assets, Trade or Business Income and Deductions, Portfolio 

Income, Rental Income, and Total Net Income) of Statistics of Income, Partnership Statistics by Sector or Industry, 

available at http://www.irs.gov/uac/SOI-Tax-Stats-Partnership-Statistics-by-Sector-or-Industry. Table 1 is available 

from 1993.
29

corporation and C-corporation) in NAICS sector 531 to sole proprietorship and partnership IRS 

depreciation in NAICS sector 531.

72 For purposes of calculating excess tax depreciation, we 

define the IRS measure of depreciation as the sum of IRS Form 1040 Schedule E rental 

depreciation (line 20), IRS Form 4835 farm rental depreciation (line 12), and IRS sector 531 

partnership depreciation.

73

For 1993 through 2012, the difference between our BEA-derived total rental and royalty net 

income (less loss) and IRS total rental and royalty net income (less loss) as a share of BEAderived total rental and royalty net income (less loss) ranges between 39.1 percent and 79.5

percent.74 For 2004 and 2005, Ledbetter (2007) reports BEA relative AGI gaps that are 

substantially smaller, 0.3 percent in 2004 and 11.3 percent 2005.

75 However, Ledbetter (2007) 

calculates the BEA relative AGI gap using a reallocated IRS AGI. BEA obtains its reallocated 

IRS AGI for total rental and royalty net income (less loss) by reallocating estate and trust income

(which is a component of IRS AGI) to rental income. We do not include a similar reallocation on 

Table 5. The BEA relative AGI gap for NIPA rental income without such a reallocation of estate 

and trust income is 23.5 for 2004 and 33.2 for 2005.

Personal Income Receipts on Assets

The reconciliation of NIPA personal income receipts on assets (personal interest income and 

personal dividend income combined) to IRS taxable interest income and dividend income

consists of seven reconciliation items (see Table 6). All seven reconciliation items are 

components of the portion of personal income not included in AGI. The imputed personal 

interest income of persons in personal income consists of depositor services furnished to persons 

without payment and premium supplements for property and casualty insurance received by 

persons (net of premium supplements to owner-occupied housing); we obtain data from NIPA 

Table 7.12.76 We obtain data for the imputed interest received from life insurance carriers and 

 

72 For 1994 to 2011, corporate IRS depreciation for NAICS sector 531 is obtained from Table 6 (Returns of Active 

Corporations: Balance Sheet, Income Statement, Tax, and Selected Other Items, by Major Industry) of Statistics of 

Income, Corporation Complete Report, available at http://www.irs.gov/uac/SOI-Tax-Stats-Corporation-CompleteReport. For 1993, corporate IRS depreciation for NAICS sector 531 is obtained from Statistics of Income, 

Corporation Source Book: Balance Sheet, Income Statement, Tax, and Selected Items by Major and Minor 

Industries, Size of Assets. We use tables for the returns of active corporations with or without net income.

73 The variables for Schedule E rental depreciation and IRS Form 4835 farm rental depreciation and Section 179 

expense deductions are available on the Individual Statistics of Income Complete Report File from 1991.

74 IRS total rent and royalty net income (less loss) in Table 5 can be found in Table 1.4 of Statistics of Income, 

Individual Income Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-TaxStats-Individual-Income-Tax-Returns-Publication-1304-(Complete-Report). NIPA rental income in Table 5 can be 

found in line 12 of NIPA Table 2.1 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 28, 2014 

revision of NIPA Table 2.1.

75 See Table 1 and Table 2 in Ledbetter (2007). Table 1 and Table 2 also include small misreporting adjustments for 

NIPA rental income as addenda items.

76 Subtract line 184 from the sum of line 170 and line 181 in NIPA Table 7.12 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 6, 2014 

revision of NIPA Table 7.12.
30

employee pensions plans from NIPA Table 7.11.77 NIPA Table 7.10 in turn gives the dividend

income that BEA imputes to persons from employee defined benefit pension plans and employee

defined contribution pension plans.

78 We obtain values for taxable interest income, nontaxable 

interest income, and ordinary dividend income retained by fiduciaries using data from IRS Form 

1041 (U.S. Income Tax Return for Estates and Trusts), as discussed in the previous sub-section

on rental income of persons. Interest income and dividend income received by nonprofit 

institutions is obtained from NIPA Table 2.9.79

Brown, et al. (2006), Ledbetter (2004), and Park (2000) identify the remaining three 

reconciliation items included in Table 6. Ledbetter (2004) indicates that net differences in 

accounting treatment between NIPA and tax regulations incorporate the earnings, excluding 

capital gains, of Individual Retirement Accounts (IRA) and Keogh plans. This is because the 

earnings of IRA and Keogh plans are included in NIPA personal income on an accrual basis but 

in IRS AGI on a cash basis.80 In addition, Brown, et al. (2006), Park (2000), and Park (1992) 

indicate that other personal income exempt or excluded from AGI incorporates the tax-exempt 

interest received by individuals, primarily from state and local government bonds. Park (1992)

suggests that BEA adjusts tax-exempt interest to take account of Federal Reserve Flow of Funds 

(now Financial Accounts of the United States) data. We do not make such an adjustment but 

instead use unadjusted SOI individual income tax data from IRS Form 1040.81

Finally, Brown, et al. (2006) and Park (1992) indicate that an adjustment for S-corporation 

dividends in personal income is included as part of other personal income exempt or excluded 

from AGI. Brown, et al. (2006) define the adjustment for S-corporation dividends in personal 

income as the sum of total property distributions, including cash, other than dividends and total 

dividend distributions paid from accumulated earnings and profits on Schedule K of IRS Form

1120S.82 In the reconciliation of NIPA personal income to IRS AGI, S-corporation distributions 

that are included in NIPA personal dividend income but not regarded as dividend income in AGI

 

77 Add line 68 and line 70 in NIPA Table 7.11 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.12.

78 See line 14 in NIPA Table 7.10 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.10.

79 See line 50 and line 51 in NIPA Table 2.9 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the October 27, 2014 

revision of NIPA Table 7.12. Data in Table 2.9 are available from 1992.

80 Brown, et al. (2006) and Park (1992) also include among the net differences in accounting treatment between 

NIPA and tax regulations an adjustment for the excess interest accrued over interest paid for corporate bonds and 

state and local government bonds. We omit this adjustment. See footnote 6 (p. 41) in Thae S. Park (1992), 

“Relationship between Personal income and Adjusted Gross Income, Survey of Current Business, May, pp. 33-43, 

available at http://www.bea.gov/scb/pdf/1992/0592cont.pdf.

81 IRS tax-exempt interest from Form 1040 can be found in Table 1.4 of Statistics of Income, Individual Income Tax 

Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-IncomeTax-Returns-Publication-1304-(Complete-Report).

82 Line 16d of Schedule K of IRS Form 1120S gives total property distributions; line 17c gives dividend 

distributions paid from accumulated earnings and profits. Schedule K data are from the SOI Corporate File.
31

are removed. IRS S-corporation income is then introduced (see Table 9A) as a part of the portion 

of AGI not included in personal income.

Ledbetter (2004) and Brown, et al. (2006) do not explain how BEA obtains the earnings of IRA 

and Keogh plans. We use data from the 2014 Investment Company Institute (ICI) Fact Book and

the ICI Retirement Market Data (second quarter of 2014 (2014Q2)) to calculate earnings for IRA 

holdings in mutual funds (equity, bond, and money market funds), bank and thrift deposits, and 

other assets. For IRA holdings in equity, bond, and money market mutual funds, we begin by 

calculating the year-over-year change in the value of IRA holdings in each type of fund.

83 We 

then obtain earnings for each type of fund using a three-step process.

 First, we calculate how much of the change in the value of IRA holdings is attributable to net 

new cash flow by multiplying the year-over-year change in the value of IRA holdings by the 

ratio of the net new cash flow of long-term mutual funds and money market funds to the 

year-over-year change in the value of the total net assets of the mutual fund industry.

84

 We obtain a total return on IRA holdings by subtracting the net new cash flow for IRA 

holdings (from above) from the year-over-year change in the value of IRA holdings.

 We split the total return to IRA holdings between dividends (i.e., earnings) and capital gains

by multiplying the total return on IRA holdings by the ratio of the (paid and reinvested)

dividends of long-term mutual funds and money market funds to the total return of long-term 

mutual funds and money market funds.

85 The total return of long-term mutual funds and 

money market funds is the difference between the year-over-year change in the value of the 

total net assets and the net new cash flow.

We calculate earnings of IRA and Keogh accounts in bank and thrift deposits by multiplying the 

value of assets (in year t-1) in bank and thrift deposits, which include Keogh deposits, by an

annual 3-month Treasury bill rate (in year t).

86 We calculate the earnings of IRA and Keogh 

accounts in other assets (including securities held in brokerage accounts) using a similar 

methodology to that used for IRA holdings in mutual funds. However, we impute net new cash 

 

83 Data on the value of assets in equity, bond, and money market mutual funds are obtained from Table 15 of the 

2014Q2 ICI Retirement Market Data. A value for equity funds is obtained by summing holdings in domestic equity, 

world equity, and hybrid funds. Comparable (although revised) data are available from Table 16 of the Investment 

Company Institute (2016), “The U.S. Retirement Market,” First Quarter 2016,” June, available at

https://www.ici.org/research/stats/retirement. Data are available from 1990.

84 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Data on the 

net new cash flow of long-term mutual funds (equity, hybrid, and bond funds) are taken from Table 19 of 

Investment Company Institute (2014), 2014 Investment Company Fact Book, available at 

https://www.ici.org/research/stats/factbook. Data on the net new cash flow of money market funds are taken from 

Table 41 of ICI (2014). Data on the total net assets of the mutual fund industry (equity funds, hybrid funds, bond 

funds, and money market funds) are taken from Table 3 of ICI (2014). In Table 19, Table 41, and Table 3, data are 

available from 1984.

85 Data on the paid and reinvested dividends of long-term mutual funds are taken from Table 31 of ICI (2014). Data 

on the paid and reinvested dividends of money market funds are taken from Table 42 of ICI (2014). In Table 31 and 

Table 42, data are available from 1984.

86 Data on the value of assets in bank and thrift deposits are from Table 6 of the 2014Q2 ICI Retirement Market 

Data. The same data are available from Table 7 of ICI (2016). Data are available from 1975. Historical data for 3-

month Treasury bill rates (secondary market) are from data release H.15 (Selected Interest Rates) of the Board of 

Governors of the Federal Reserve System, available at http://www.federalreserve.gov/releases/h15/data.htm.
32

flow, total return, and earnings for IRA holdings of other assets using values for net new cash 

flow, total return, and earnings that we calculate for IRA holdings of equity mutual funds.

87

Our calculated earnings of IRA and Keogh plans are used to reconcile both NIPA personal 

interest income to IRS taxable interest income and NIPA personal dividend income to IRS 

dividend income. In general, all earnings from holdings of IRA and Keogh plans in mutual funds

are used to reconcile NIPA personal interest income to IRS taxable interest income. The earnings 

of holdings of IRA and Keogh plans in interest-bearing assets (i.e., bank and thrift deposits) are

also used to reconcile NIPA personal interest income to IRS taxable interest income. Only the 

earnings of holdings of IRA and Keogh plans in dividend-yielding assets (i.e., other assets) are

used to reconcile NIPA personal dividend income to IRS dividend income. As a result, the 

earnings of IRA and Keogh plans account for a much larger adjustment to NIPA personal 

interest income than they do to NIPA personal dividend income.88

Regardless, the adjustment to NIPA personal interest income for the earnings of IRA and Keogh 

plans is initially small for 2000 (just over $28 billion in 2000 compared to $85 billion in Table 8 

of Brown, et al. (2006)).89 To compensate, we add earnings from equity, bond, and money 

market mutual fund holdings in defined contribution plans. We calculate earnings for defined 

contribution plan holdings in each type of mutual fund using ICI data and a methodology similar 

to that outlined above for IRA holdings in mutual funds.

90 In other words, we use ICI data for

total net assets and (paid and reinvested) dividends in long-term mutual funds and money market 

funds to calculate ratios that we apply to the data we have for the year-over-year change in the 

value of mutual fund holdings in defined contribution plans. Including earnings from defined

contribution plans increases the adjustment to NIPA personal interest income for the earnings of 

IRA and Keogh plans to just over $71 billion in 2000.

For 1993 through 2012, the difference between our BEA-derived taxable interest income and 

dividend income and IRS taxable interest income and dividend income as a share of BEAderived taxable interest income and dividend income ranges from -53.3 percent in 2010 to 35.0

percent in 2003 but averages around 11.7 percent.

91 Ledbetter (2007) reports similar BEA 

 

87 ICI (2014) does not include data on net new cash flow and total net assets for other assets.

88 For 2000, the earnings of mutual funds and bank and thrift deposits in IRA and Keogh plans subtract $28.3 billion 

from NIPA personal interest income. The earnings of other assets in IRA and Keogh plans subtract $5.2 billion from 

NIPA personal dividend income. In Table 7 of Brown, et al. (2006), IRA and Keogh dividend earnings subtract 

$18.5 billion from NIPA personal dividend income.

89 The total given for net differences in accounting treatment between NIPA and tax regulations in Table 8 of 

Brown, et al. (2006) also includes an adjustment for excess interest accrued over interest paid. We assume that the 

adjustment for interest accrued over paid is a small part of the total given for differences in accounting treatment.

90 Data on defined contribution plan holdings of mutual funds are taken from Table 13 of the 2014Q2 ICI 

Retirement Market Data. Comparable (although revised) data are available from Table 14 of ICI (2016). Data are 

available from 1992.

91 IRS taxable interest income and IRS (ordinary) dividend income in Table 6 can be found in Table 1.4 of Statistics 

of Income, Individual Income Tax Returns Publication 1304 (Complete Report), available at 

http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-(Complete-Report). NIPA 

personal interest income and NIPA personal dividend income can be found in line 14 and line 15 of NIPA Table 2.1 

at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 28, 

2014 revision of NIPA Table 2.1. 
33

relative AGI gaps (for personal interest income and personal dividend income combined) for 

2004 and 2005. For example, for 2004, the BEA relative AGI gap is 35.1 percent; for 2005, it is

32.3 percent.

Implications for Income Subject to Tax

Table 6A reorganizes Table 6 to help clarify how much of NIPA personal income receipts on

assets is paid out in dividends and interest income that are subject to tax. The first section of 

Table 6A subtracts from NIPA personal income receipts on assets imputed income in personal 

income and S-corporation dividends in personal income. Non-S-corporation dividends and cash 

interest income are the result. In 2012, BEA-derived taxable income and dividend income are 

22.6 percent of non-S-corporation dividends and cash interest income because a large percentage 

of the components of NIPA personal income receipts on assets are deferred or not subject to tax.

For example, the investment income of life insurance carriers and pension plans accounts for 

nearly 50 percent of non-S-corporation dividends and cash interest income; tax-exempt interest 

accounts for another 4.7 percent. The percentage of non-S-corporation dividends and cash 

interest income deferred or not subject to tax averaged about 33.5 percent between 1993 and 

2008. In 2009 through 2012, it declined markedly, averaging 21.9 percent.

Other Personal Income Not Included in AGI

Other personal income not included in AGI consists of nontaxable government transfer payments 

to persons and nontaxable business transfer payments to persons (see Table 7). No part of 

business transfer payments to persons is assumed taxable and, thus, included in AGI. Table 7 

removes the full value of this type of NIPA personal income and its BEA-derived AGI equals

zero.

Government transfer payments to persons include taxable and nontaxable components. Table 7 

removes only the nontaxable components. The taxable components remain as part of the 

reconciliation of NIPA personal income and IRS AGI with an associated positive BEA-derived 

AGI (see Table 8A and Table 8B). For example, Ledbetter (2004) suggests that the railroad 

retirement benefit part of benefits from social insurance funds is taxable.92 We therefore subtract 

from NIPA government transfer payments to persons NIPA railroad retirement benefits (from 

NIPA Table 3.12).

93 We also subtract from NIPA government transfer payments to persons 

NIPA unemployment compensation (from NIPA Table 2.1) and taxable Social Security benefits 

(from SOI individual income tax return statistics) to obtain nontaxable government transfer 

payments to persons.

94

 

92 See footnote 3 in Table 2 of Ledbetter (2004).

93 See line 12 in NIPA Table 3.12 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 3.12. The NIPA treat railroad retirement benefits as a government social insurance fund. See 

Chapter III of U.S. Bureau of Economic Analysis (2015), “State Personal Income and Employment: Concepts, Data 

Sources, and Statistical Methods,” September, available at http://www.bea.gov/regional/pdf/spi2014.pdf.

94 NIPA Table 2.1 is available at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. See line 17 for NIPA 

government social benefits to persons, line 24 for NIPA net other current transfer receipts from business, line 7 for 
34

Other Income Included in AGI but Not NIPA Personal Income

Other income included in AGI but not NIPA personal income consists of a payroll tax 

adjustment, net gains from the sale of assets, taxable pensions, S-corporation income, and other

types of income. SOI individual income tax return statistics provide data for net gains from the 

sale of assets, taxable pensions (and annuities), and other types of income.

95 S-corporation 

income is calculated using data from Schedule E of IRS Form 1040 from the Individual Statistics

of Income Complete Report File.

 Net gains from the sale of assets are the sum of net gains (less losses) from the sales of 

capital assets reported on Schedule D of IRS Form 1040, capital gains distributions reported 

on IRS Form 1040, and net gains (less losses) from sales of property other than capital assets.

 Other types of income are obtained by summing taxable IRA distributions, alimony received, 

state income tax refunds, gambling earnings, cancellation of debt, taxable health savings 

account distributions, and other net income (less loss) and subtracting from the result net 

operating losses and the foreign-earned income exclusion.

 S-corporation income is the sum of S-corporation nonpassive income (less loss) and Scorporation passive income (less loss) from Part II of Schedule E of IRS Form 1040. Scorporation nonpassive income (less loss) is obtained by subtracting from nonpassive Scorporation income S-corporation Section 179 expense deductions and S-corporation

nonpassive losses.

Table 9A adds to NIPA personal income IRS net gains from the sale of assets, taxable pensions,

S-corporation income, and other types of income. NIPA personal income includes no

counterparts with the exception of railroad retirement benefits. NIPA railroad retirement benefits 

are excluded from nontaxable government personal current transfer receipts in Table 7; they are 

reintroduced in the first row of Table 9A so that Table 1 accounts for all components of NIPA 

personal income. The first row of Table 9B gives total contributions for government social 

insurance (in NIPA Table 2.1).

96 Taking the difference between the employer contributions for 

government social insurance that are a part of NIPA compensation of employees (in the first row 

of Table 2) and total contributions for government social insurance gives employee and selfemployed contributions for government social insurance. In Table 1, employee and selfemployed contributions are reintroduced as a component of IRS AGI not in NIPA personal 

income so that the BEA-derived AGI associated with them is zero. Similarly, in Table 9B, total 

 

NIPA employer contributions for employee and pension insurance funds, and line 21 for NIPA unemployment 

compensation. We used the August 28, 2014 revision of NIPA Table 2.1. IRS taxable Social Security benefits (and 

unemployment compensation) from Form 1040 can be found in Table 1.4 of Statistics of Income, Individual Income 

Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-IndividualIncome-Tax-Returns-Publication-1304-(Complete-Report).

95 Data on IRS taxable pensions, net gains from the sale of assets, and other types of AGI in Table 9A can be found 

in Table 1.4 of Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete Report), available 

at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-(Complete-Report).

96 NIPA Table 2.1 is available at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. See line 8 for employer 

contributions for government social insurance and line 25 for total (employer, employee, and self-employed) 

contributions for government social insurance. We used the August 28, 2014 revision of NIPA Table 2.1.
35

contributions for government social insurance are reintroduced as a portion of AGI not included 

in personal income so that BEA-derived AGI is zero.

IV. Implications for the Income Tax Base: Taxed Components, Untaxed Components,

Deferred Components, and Methodological Adjustments

Table 10 uses reconciliation data from Table 1 through Table 9B to categorize components of 

NIPA compensation of employees, NIPA government and business transfer payments, NIPA 

farm and nonfarm proprietors’ income, NIPA rental income, and NIPA personal income receipts 

on assets as taxed components, untaxed components, deferred components, and methodological 

adjustments. It builds up to NIPA personal income. Thus, Table 10 does not incorporate any 

components of Table 1 through Table 9B that are part of AGI but not part of NIPA personal 

income. Such components include net gains from the sale of assets, taxable pensions, and Scorporation income.

A component is placed in the taxed category if it is part of AGI. A component is placed in the 

untaxed category if it is not part of AGI (but is part of NIPA personal income). Otherwise the 

component is placed among the deferred components and methodological adjustments. The 

deferred components and methodological adjustments take in employer and employee 

contributions to pension plans. They also include reconciliation items arising because of 

differences between income tax accounting and NIPA accounting such as in the valuation of 

inventories and depreciation .

 The taxed components include salaries and wages on IRS Form 1040, taxable unemployment 

compensation, taxable Social Security benefits, IRS net income (less loss) of proprietorships 

(farm and nonfarm) and partnerships, IRS total rental and royalty net income (less loss), IRS 

taxable interest income, IRS dividend income, and railroad retirement benefits.

97

 The untaxed components include employer contributions for government social insurance, 

employee contributions to employer-sponsored health insurance, exempt military pay, 

employer contributions for insurance funds, nontaxable personal current transfer receipts, 

investment income of life insurance carriers and pension plans, investment income received 

by nonprofit institutions or retained by fiduciaries, tax-exempt interest, and the earnings 

(excluding capital gains) of IRA and Keogh plans.

98

 The deferred components include employee nontaxable contributions to the federal 

government’s Thrift Savings Plan and private defined contribution (401k/403b/408k) plans

as well as employer contributions for pension funds.

99

 

97 Railroad retirement benefits are obtained from line 8 of NIPA Table 7.8. NIPA Table 7.8 is available at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. We used the August 5, 2014 

revision of NIPA Table 7.8.

98 Employer contributions for insurance funds are obtained by subtracting employer contributions for pension funds 

from total employer contributions for employee pension and insurance funds.

99 Employer contributions for pension funds are obtained by summing line 6 (federal civilian pension plans), line 7 

(federal military pension plans), line 10 (state and local employee retirement), and line 11 (private pension plans) in 

NIPA Table 7.8.
36

 The methodological adjustments include imputed income in personal income, S-corporation 

dividends in personal income, other net differences in the accounting treatment between 

NIPA and tax regulations, and Non-schedule E partnership income.

A NIPA accounting adjustment that combines total contributions for government social 

insurance and adjustments for misreporting on income tax returns is added to ensure that the line 

items in Table 10 sum to NIPA personal income.

100 The “gap” in Table 10 is obtained by

summing the differences between BEA-derived AGI and IRS AGI for salaries and wages (see 

Table 2), taxable unemployment compensation (see Table 8A), farm and nonfarm proprietors’ 

income (see Table 3 and Table 4), rental income (see Table 5), and personal income receipts on 

assets (Table 6).

There have been some changes in the taxed components, untaxed components, deferred 

components, and methodological adjustments as a percent of NIPA personal income over the 20-

year period considered (see Figure 2). The taxed components have declined as a percent of NIPA 

personal income, from 59.7 percent in 1993 to 54.3 percent in 2012. The deferred components 

have risen slightly, from 4.6 percent in 1993 to 5 percent in 2012. The untaxed components

account for approximately 34 percent of NIPA personal income in 1993 and 2012. Within the 

taxed components, IRS salaries and wages comprise the largest share at 85.8 percent in 1993 and 

83.5 percent in 2012 (see Figure 3A). Looking at the taxed components excluding IRS wages 

and salaries, IRS net income (less loss) of proprietorships and partnerships are 40.5 percent of 

the total taxed components excluding IRS wages and salaries in 1993 and 41.2 percent in 2012

(see Figure 3B). Taxable Social Security benefits have also expanded, from 5.2 percent in 1993 

to nearly 18.0 percent in 2012. At the same time, IRS taxable interest income has slipped, from 

27.4 percent in 1993 to 9 percent in 2012.

The importance of various untaxed components of NIPA personal income has changed over the 

20-year period considered (see Figure 4). The investment income of life insurance carriers and 

pension plans and the investment income received by nonprofit institutions or retained by 

fiduciaries have declined as a percent of the total untaxed components, from 23.6 percent in 1993 

to 18.6 percent in 2012. Tax-exempt interest has also fallen as a percent of the total untaxed 

components, from 2.4 percent in 1993 to 1.5 percent in 2012. At the same time, the largest 

untaxed component of NIPA personal income, nontaxable personal current transfer receipts 

(government and business), comprises a higher percent of the total untaxed components in 2012 

than it does in in 1993, 37.7 percent in 1993 and 43.3 percent in 2012. Earnings on IRA and 

Keogh plans excluding capital gains have also expanded as a percent of the total untaxed 

components, from 3.4 percent in 1993 to 5.3 percent in 2012.

Within the deferred components of NIPA personal income, employee contributions to pension 

accounts have become more prominent (see Figure 5). Employee nontaxable contributions to 

TSP and to private defined contribution plans have grown as a percent of the total deferred 

 

100 The NIPA accounting adjustment is obtained by summing adjustments for misreporting on income tax returns

with the negative of total contributions for government social insurance (shown in the first row of Table 9B).
37

components, from 19.2 percent in 1993 to 31 percent in 2012. At the same time, employer 

contributions for pension funds have slipped from 80.8 percent in 1993 to 69 percent in 2012.

V. Implications for Payroll Tax Base

In the final section, we first reconcile NIPA compensation of employees to taxable wage and 

salary earnings for the Medicare Part A Hospital Insurance (HI) program. We then reconcile 

NIPA nonfarm proprietors’ income to nonfarm taxable self-employed earnings for the Medicare 

Part A HI program. In general, the reconciliation items that we identify account for much of the 

difference between NIPA compensation of employees and HI taxable wage and salary earnings. 

They also account for much of the difference between NIPA nonfarm proprietors’ income and

nonfarm HI taxable self-employed earnings. We find small reductions in how much of NIPA 

compensation of employees and NIPA nonfarm proprietors’ income are subject to payroll taxes.

NIPA personal income less methodological adjustments subject to payroll taxes has also

generally fallen.

Medicare Hospital Insurance (HI) Taxable Wage and Salary Earnings

Federal Insurance Contributions Act (FICA) taxes are paid into the Old-Age, Survivors, and 

Disability (OASDI) trust fund and the Medicare HI trust fund. They are based solely on income 

from labor and cover all but the self-employed owners of three types of business entities—sole 

proprietorships, general partnerships, and limited partnerships. A “reasonable compensation” for 

the labor of owners of S corporations is included in the FICA tax base.101 The FICA tax base as it 

pertains to OASDI is limited to maximum taxable earnings ($118,500 in 2016) that are adjusted 

annually with changes in a national average wage index. All earnings above the maximum 

taxable amount are exempt from taxes for OASDI. Since 1994, the FICA tax base for the 

Medicare HI program has not been limited by a maximum taxable income level.102 For this 

reason, we reconcile NIPA compensation of employees to Medicare HI taxable wage and salary 

earnings from 1994.

From 1994, Medicare HI taxable wage and salary earnings are larger than IRS wages and salaries 

subject to the individual income tax (see Table 11 and Table 12). Like IRS wages and salaries 

subject to the individual income tax, they exclude employer contributions to retirement and 

pension plans, employer (and employee) contributions to employer-sponsored health insurance, 

and employer contributions to private workers’ compensation and private supplemental 

unemployment insurance. However, they include employer contributions to private group life 

insurance and employee contributions to private defined contribution plans.103 Hence, Table 11 

 

101 See Section 15, “Special Rules for Various Types of Services and Payments,” of Internal Revenue Service 

(2014a), Publication 15 (Circular E), Employer’s Tax Guide, available at http://www.irs.gov/publications/p15. See 

also Congressional Budget Office (2012), “The Taxation of Capital and Labor through the Self-Employment Tax,” 

September, available at https://www.cbo.gov/sites/default/files/09-27-SECA.pdf.

102 The maximum taxable earnings were the same for OASDI and HI from 1966 through 1990. Separate HI 

maximum taxable earnings of $125,000, $130,200, and $135,000 were applicable for 1991 through 1993. After 

1993, there was no limitation on HI taxable wage and salary earnings (see http://www.ssa.gov/oact/cola/cbb.html).

103 See Section 15, “Special Rules for Various Types of Services and Payments,” of IRS (2014a). Specifically, 

group-term life insurance costs are exempt except for the cost of group-term life insurance that can be included in an 
38

does not remove the value of private group life insurance (under employer contributions for 

employee pension and insurance funds) and the value of employee contributions to TSP and 

401k/403b/408k plans (under other personal income exempt or excluded from HI taxable wage 

and salary earnings) from NIPA compensation of employees.

Table 11 does not add to NIPA compensation of employees either supplemental unemployment 

insurance benefits or all of foreign-earned income of U.S. citizens living abroad for more than 

one year (under other types of income that are a portion of HI taxable wage and salary earnings 

not included in personal income). Supplemental unemployment insurance benefits are subject to 

the individual income tax but exempt from Social Security and Medicare taxes under certain 

conditions.104 We assume that not all income reported on IRS Form 2555 is subject to Social 

Security and Medicare taxes. Specifically, for Table 11, salaries and wages, allowances, and 

noncash income net excludable meals and lodging reported on IRS Form 2555 are assumed 

subject to Social Security and Medicare taxes.105 Other foreign income reported on IRS Form 

2555 and the difference between total foreign-earned income (on IRS Form 1040 and IRS Form 

2555) and foreign-earned income on IRS Form 2555 are assumed not subject to Social Security 

and Medicare taxes.106

For the years between 1994 and 2012, the difference between our measure of BEA-derived HI 

taxable wage and salary earnings and HI taxable wage and salary earnings fluctuates between 1 

percent and 2 percent of BEA-derived HI taxable wage and salary earnings. Excluding from the 

reconciliation data on employee contributions to employer-sponsored health insurance gives a 

difference that ranges from 3 percent to 5 percent of BEA-derived HI taxable wage and salary 

earnings. Unpublished estimates of HI taxable wage and salary earnings from 1993 are provided 

by the Office of the Chief Actuary of the Social Security Administration. Published data on HI 

taxable wage and salary earnings are available for 1997 through 2012 from Table 4.B12 of 

Annual Statistical Supplement to the Social Security Bulletin (beginning in 2000).107

 

employee’s gross income. See also Internal Revenue Service (2014b), Publication 15-B Employer’s Guide to Fringe 

Benefits, available at http://www.irs.gov/pub/irs-pdf/p15b.pdf.

104 See Section 15 of IRS (2014a). Also Internal Revenue Service (2014c), Publication 15-A Employer’s 

Supplemental Tax Guide, available at http://www.irs.gov/pub/irs-pdf/p15a.pdf, gives the conditions under which 

supplemental unemployment compensation plan benefits are excluded from wages for Social Security and Medicare 

tax purposes.

105 SOI data for all but IRS Form 2555 salaries and wages and allowances are only available every 5 years from 

1991. We grow the sum of salaries and wages, allowances, and noncash income net excludable meals and lodging 

reported on IRS Form 2555 at same rate as salaries and wages reported on IRS Form 2555.

106 Table 11 assumes that 100 percent of IRS Form 2555 salaries and wages, allowances, and noncash income net 

excludable meals and lodging is subject to U.S. Social Security and Medicare taxes. However, U.S. citizens working 

overseas for foreign affiliates of American employers and other private employers would be exempt from U.S. 

Social Security and Medicare taxes unless an American employer by agreement covers U.S. citizens employed by its 

foreign affiliates or the U.S. citizen works for an American employer. See Section 15, “Special Rules for Various 

Types of Services and Payments,” of IRS (2014a).

107 Each Annual Statistical Supplement contains only one year of data for HI taxable wage and salary earnings. 

Because the Social Security Administration continuously receives reports of changes in wage and salary earnings for 

prior years, the HI taxable wage and salary earnings data shown in Table 11 do not match estimates published in 

prior releases of the Annual Statistical Supplement. See http://www.ssa.gov/policy/docs/statcomps/ for prior releases 

of the Annual Statistical Supplement.
39

Rearranging Table 11 allows us to characterize how much of NIPA compensation of employees 

appears in HI taxable wage and salary earnings (see Table 12). Between 1994 and 2012, 

employer contributions for insurance funds and government social insurance fluctuate but 

change little as a share of NIPA compensation of employees less imputed income, equaling 13.7 

percent in 1994 and 13.8 percent in 2012. Other components of NIPA personal income that are 

excluded or deferred from tax increase only slightly as a percent of NIPA compensation of 

employees less imputed income, equaling 7.9 percent in 1994 to 8.8 percent in 2012. As a result, 

BEA-derived HI taxable wage and salary earnings decline only slightly between 1994 and 2012 

as a share of NIPA compensation of employees less imputed income. They average 79.1 percent 

of NIPA compensation of employees less imputed income over the period.

Medicare Hospital Insurance (HI) Taxable Self-Employed Earnings

Self-Employment Contributions Act (SECA) taxes are paid into the OASDI trust fund and the 

Medicare HI trust fund. They are based on net business income and apply to the self-employed 

owners of sole proprietorships, general partnerships, and limited partnerships. The SECA tax 

base as it pertains to OASDI is limited to maximum taxable earnings ($118,500 in 2016). Since 

1994, the SECA tax base as it pertains to the Medicare HI program has not been limited by a 

maximum taxable income level. For this reason, we reconcile NIPA nonfarm proprietors’ income 

to nonfarm Medicare HI taxable self-employed earnings from 1994.108

We approximate nonfarm HI taxable self-employed earnings by multiplying total (farm and 

nonfarm) HI taxable self-employed earnings by the ratio of IRS Schedule SE (Form 1040), line 2 

net business profit (loss) to the sum of IRS Schedule SE, line 2 net business profit (loss) and IRS 

Schedule SE, line 1a net farm profit (loss). For 2014, line 1a of IRS Schedule SE (Section A and 

Section B) combines net farm profit (loss) from line 34 of IRS Schedule F (Form 1040) with 

self-employment earnings (loss) from Box 14 of IRS Schedule K-1 (Form 1065).109 Line 2 of 

IRS Schedule SE combines net business and professions profit (loss) from line 31 of IRS 

Schedule C (Form 1040) and line 3 of IRS Schedule C-EZ (Form 1040) with self-employment 

earnings (loss) from Box 14 of IRS Schedule K-1 (Form 1065).110

The reconciliation of NIPA nonfarm proprietors’ income to nonfarm HI taxable self-employed 

earnings follows the reconciliation of NIPA nonfarm proprietors’ income to IRS net income (less 

loss) of business and professions and partnerships with four exceptions (see Table 3 and Table 

13). First, it excludes an adjustment for Non-schedule E partnership income. Second, it adds to 

NIPA nonfarm proprietors’ income 92.35 percent of church employee income reported on line 5a 

 

108We use data on total self-employed earnings in covered employment from Table 4.B2 of the Social Security 

Administration’s 2014 Annual Statistical Supplement. From 1994, total self-employed earnings in covered 

employment equal reported HI taxable self-employed earnings. This is not the case for total wage and salary 

earnings in covered employment and reported HI taxable wage and salary earnings. See U.S. Social Security 

Administration (2015), Annual Statistical Supplement to the Social Security Bulletin, 2014, available at 

http://www.ssa.gov/policy/docs/statcomps/supplement/2014/index.html.

109 Self-employment earnings (loss) are also reported in Box 9 of Schedule K-1 of IRS Form 1065-B.

110 IRS Schedule SE, line 2 net business profit (loss) can include the earnings of a minister, a member of a religious 

order, or a Christian Science practitioner that are not considered church employee income if the minister, member of 

the religious order, or Christian Science practitioner has not filed IRS Form 4361 for exemption from selfemployment tax.
40

of Section B of IRS Schedule SE (under portion of HI taxable self-employed earnings (nonfarm)

not included in personal income).

Third, it includes an adjustment for definitional differences in the IRS measures of partnership 

income underlying NIPA nonfarm proprietors’ income and HI taxable self-employed earnings. 

NIPA Table 7.14 reconciles NIPA nonfarm proprietors’ income to IRS net profit (less loss) of 

nonfarm proprietorships and partnerships, plus payments to partners. IRS net profit (less loss) of 

nonfarm proprietorships is reported on line 31 of IRS Schedule C (and line 3 of IRS Schedule CEZ); it is also included in line 2 of Section B (or Section A) of IRS Schedule SE. This means that 

NIPA nonfarm proprietors’ income and HI taxable self-employed earnings are based on the same 

measure of net business income (receipts minus expenses) for sole proprietorships.

This is not the case with respect to nonfarm partnerships. BEA defines IRS net profit (less loss) 

of nonfarm partnerships, plus payments to partners, as the sum of ordinary business income 

(loss), net rental real estate income (loss), other net rental income (loss), and guaranteed 

payments as reported on IRS Form 1065 and Schedule K of IRS Form 1065.111 The selfemployment earnings (loss) of partners that are included in line 2 of IRS Schedule SE are 

reported separately on Schedule K-1 (Box 14 of Part III) of IRS Form 1065. For general partners, 

self-employment earnings from Schedule K-1 equal guaranteed payments plus the partners’ 

share of net business income. However, for limited partners, they equal only the guaranteed 

payments (CBO, 2012).

We obtain a definitional adjustment (“adjustment for definitional differences in IRS measure of 

partnership income” in Table 13) by taking the difference between nonfarm IRS net profit (less 

loss) of partnerships, plus payments to partners, as defined by BEA and implied IRS Schedule K1 self-employment earnings.112 Implied IRS Schedule K-1 earnings are obtained by taking the 

difference between IRS Schedule SE, line 2 net business profit (loss) and IRS net business and 

professions profit (less loss) as reported on line 31 of IRS Schedule C (and line 3 of IRS 

Schedule C-EZ).

Finally, the reconciliation of NIPA nonfarm proprietors’ income to nonfarm HI taxable selfemployed earnings includes an adjustment for an IRS Schedule SE reduction in net business 

profit subject to self-employment taxes. Line 4 of IRS Schedule SE multiplies positive dollar 

amounts on line 1a and line 2 by 92.35 percent.113 The corresponding adjustment (“adjustment 

for reduction in income subject to tax”) included in Table 13 is obtained by taking the difference 

between IRS Schedule SE, line 2 net profit (loss) and the sum of 92.35 percent of (positive) 

 

111 See pp. 11-7 through 11-9 in Chapter 11 (Nonfarm Proprietors’ Income) of BEA (2015).

112 SOI makes available partnership statistics by industry for 1993 through 2012. See Table 1 (“All Partnerships: 

Total Assets, Trade or Business Income and Deductions, Portfolio Income, Rental Income, and Total Net Income by 

Selected Industrial Groups”), available at http://www.irs.gov/uac/SOI-Tax-Stats-Partnership-Statistics-by-Sector-orIndustry, for data on partnership ordinary business income (loss), net rental real estate income (loss), other net rental 

income (loss), and guaranteed payments for all industries and farms. We define farm industries as crop production 

and animal production.

113 Net farm profit and net business profit are multiplied by 92.35 percent on line 4 of IRS Schedule SE because a 

self-employed individual pays the employer and employee halves of Social Security and Medicare taxes. Selfemployment taxes are reduced by reducing the income subject to Social Security and Medicare taxes by 7.65 

percent, or the sum of OASDI taxes (12.4 percent) and Medicare HI taxes (2.9 percent) divided by two.
41

business and professions net income from line 31 of IRS Schedule C, all business and 

professions net loss from line 31 of IRS Schedule C, and 92.35 percent implied self-employment 

earnings.114

For the years between 1994 and 2003, the difference between our measure of BEA-derived HI 

taxable self-employed earnings (nonfarm) and HI taxable self-employed earnings (nonfarm)

averages -2.1 percent of BEA-derived self-employed earnings (nonfarm). In absolute value, the 

difference between the two ranges from a high of 4.0 percent in 2004 to a low of 0.0 percent in 

2010 (see Table 13). Table 14 rearranges Table 13 to show that BEA-derived HI taxable selfemployed earnings (nonfarm) decline as a percent of NIPA nonfarm proprietors’ income less 

methodological adjustments, from 48.7 percent in 1994 to 46.7 percent in 2012. Concomitantly, 

adjustments for misreporting on income tax returns rise as a percent of NIPA nonfarm 

proprietors’ income less methodological adjustments, from 46.4 percent in 1994 to 48.7 percent 

in 2012. 

Implications for NIPA Personal Income Subject to Payroll Taxes

NIPA personal income less methodological adjustments subject to FICA taxes has generally 

fallen (see Table 15). Our BEA-derived HI taxable wage and salary earnings have declined from 

55.6 percent of NIPA personal income less methodological adjustments in 1994 to 52.4 percent 

in 2012. At the same time, NIPA personal income subject to SECA taxes has changed little, with 

our BEA-derived taxable self-employed earnings equaling 3.9 percent of NIPA personal income 

less methodological adjustments in 1994 and 4.0 percent in 2012. These results are consistent 

with NIPA compensation of employees less imputed income generally slipping as a share of 

NIPA personal income less methodological adjustments from 70.5 percent in 1994 to 67.1

percent in 2012 and with NIPA nonfarm proprietors’ income less methodological adjustments 

increasing slightly as share of NIPA personal income less methodological adjustments from 7.5 

percent in 1994 to 8.3 percent in 2012 (see Table 1E).

VI. Conclusion

This paper presents alternative measures of some of the largest sources of tax expenditures by 

reconciling NIPA personal income with IRS AGI. Our reconciliation of NIPA personal income 

and IRS AGI is done by type of income. The reconciliation items that we identify yield a BEAderived AGI that closely approximates IRS AGI, with the gap between our BEA-derived AGI 

and IRS AGI falling as low as 2.1 percent of BEA-derived AGI in 2010 and averaging 4.3 

percent of BEA-derived AGI between 1993 and 2012. Among the reconciliation items that we 

subtract from NIPA personal income to obtain a BEA-derived AGI are components of NIPA 

personal income that are excluded or deferred from tax. Those components reflect many factors 

including the expansion of employee contributions to defined contribution pension plans and the 

growth of both employer and employee contributions to employer-provided health insurance. 

 

114 Business and professions net income and net loss from line 31 of IRS Schedule C for 1994 to 2012 can be 

obtained from Table 1.4 of Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete 

Report), available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-

(Complete-Report).
42

Between 1993 and 2012, we find that the portion of NIPA personal income that is excluded or 

deferred from tax has increased, from 36.4 percent of NIPA personal income less methodological 

adjustments in 1993 to 39.1 percent in 2012. 

At the same time exclusions and deferrals have increased as a share of NIPA personal income 

less methodological adjustments, the portion of AGI that is not part of NIPA personal income 

has also generally increased as a share of NIPA personal income less methodological 

adjustments. Some of the increase in the portion of AGI not included in NIPA personal income is 

driven by increases in net gains from the sale of assets as a share of NIPA personal income less 

methodological adjustments. Some of the increase is also associated with increases in taxable 

pensions as a share of NIPA personal income less methodological adjustments. As a result, BEAderived AGI has risen slightly as a share of NIPA personal income less methodological 

adjustments over the last 20 years, equaling 72.2 percent of NIPA personal income less 

methodological adjustments in 1993 and 73.8 percent in 2012.
43

Figure 1. BEA-Derived Current-Income AGI and BEA-Derived AGI, Percent of NIPA 

Personal Income less Methodological Adjustments

Panel A: Components of Personal Income Excluded or Deferred from Tax

Panel B. BEA-Derived Current-Income AGI

30

32

34

36

38

40

42

50

52

54

56

58

60

62

64
44

Figure 1. BEA-Derived Current-Income AGI and BEA-Derived AGI, Percent of NIPA 

Personal Income less Methodological Adjustments, Cont’d.

Panel C. Portion of AGI not included in Personal Income

Panel D. BEA-Derived AGI

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: AGI = adjusted gross income; BEA = Bureau of Economic Analysis; NIPA = National Income and Product 

Accounts.

See notes to Table 1 and Table 1B.

0.0

5.0

10.0

15.0

20.0

25.0

62

64

66

68

70

72

74

76

78

80

82

84
45

Table 1. Reconciliation of NIPA Personal Income and IRS Adjusted Gross Income, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Personal Income 5646.9 7075.0 8987.1 10609.4 12087.5 13887.8

Less: Portion of Personal Income not included in AGI

Nontaxable personal current transfer receipts 723.6 859.3 1054.2 1346.2 1823.8 2032.1

Employer contributions for employee pension and 

insurance funds 501.7 548.3 734.1 966.8 1077.5 1160.5

Imputed income in personal income 158.6 222.8 294.8 350.3 419.4 577.2

Investment income of life insurance carriers and pension 

plans 391.2 478.3 504.9 565.8 727.3 752.2

Investment income received by nonprofit institutions or 

retained by fiduciaries 62.3 87.0 83.1 95.0 93.9 118.2

Differences in accounting treatment between NIPA and 

tax regulations, net 55.7 29.7 106.1 -50.2 209.3 105.3

Other personal income exempt or excluded from adjusted 

gross income 196.3 308.3 432.1 612.5 684.0 832.8

Non-schedule E partnership incomea12.2 58.9 90.5 215.1 47.3 268.1

Employee contributions to employer-sponsored health 

insurancea 86.0 91.3 131.8 170.2 219.8 238.5

Adjustments for misreporting on income tax returnsa187.1 280.4 386.2 479.4 443.9 533.9

Plus: Portion of AGI not included in Personal Income

Payroll tax adjustment (employee and self-employed 

contributions for government social insurance) 237.7 297.6 375.2 445.2 506.3 437.3

Net gains from sale of assets 140.3 354.6 324.6 671.7 213.5 613.5

Taxable pensions 194.0 259.7 338.7 420.1 523.3 612.5

S-corporation income 51.1 102.6 130.6 250.7 205.4 321.2

Other types of income 28.2 71.4 118.7 142.8 148.5 193.3

Equals: BEA-derived AGI 3923.5 5196.7 6457.1 7789.0 7938.5 9446.9

IRS AGIb

3723.3 4969.9 6170.6 7422.5 7626.4 9100.1

Difference as a Percent of BEA-derived AGI 5.1 4.4 4.4 4.7 3.9 3.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)
46

Notes: NIPA = National Income and Product Accounts; IRS = Internal Revenue Service; AGI = adjusted gross income; TSP = Thrift Savings Plan; BEA = 

Bureau of Economic Analysis; NA = not available. Table 1 shows the reconciliation of NIPA personal income and IRS adjusted gross income for selected years. 

Reconciliation data for all years between 1993 and 2012 are available upon request.

a. This adjustment is not among the reconciliation items included in the discontinued NIPA Table 7.19. It is added to reduce the gap between BEA-derived 

AGI and IRS AGI. It is discussed in greater detail in next section of the paper.

b. The discontinued NIPA Table 7.19 also included the calculation of a reallocated IRS AGI. BEA obtained a reallocated IRS AGI by reallocating partnership 

income to proprietors’ income (farm and nonfarm) and estate and trust income to proprietors’ income and rental income. For reallocated IRS AGI in 2004 

and 2005, see Table 1 and Table 2 in Mark Ledbetter (2007), “Comparison of BEA Estimates of Personal Income and IRS Estimates of Adjusted Gross 

Income,” Survey of Current Business, November, pp. 35-41, available at http://www.bea.gov/scb/pdf/2007/11%20November/1107_pi_agi.pdf. BEA 

calculated its AGI gap by subtracting reallocated IRS AGI from BEA-derived AGI. Table 1 omits reallocated IRS AGI because we are interested in the 

aggregate reconciliation of NIPA personal income to IRS AGI. In aggregate, reallocated IRS AGI equals IRS AGI.
47

Table 1A. Selected Components of the Statutory Adjustments

1993 1997 2001 2005 2009 2012

Total Statutory Adjustments, Billions of 

U.S. Dollars 36.6 47.0 60.6 109.4 113.0 134.0

As a Percent of Total Statutory 

Adjustmentsa

Health savings account deduction 0.0 0.0 0.0 0.5 2.3 2.5

Moving expenses 0.0 3.9 3.6 2.8 1.9 2.3

Deductible part of the self-employment tax 32.4 31.7 29.9 20.8 21.1 20.5

Contributions to self-employed retirement 

plans 22.3 21.8 21.7 19.4 16.7 15.6

Self-employed health insurance deduction 5.7 8.2 13.5 18.0 19.3 19.2

Alimony payments 14.5 13.4 12.3 8.2 8.7 8.3

IRA deductions 23.3 18.4 12.2 11.0 9.9 8.8

Student loan interest 0.0 0.0 4.5 4.6 7.4 8.0

Tuition and fees deduction 0.0 0.0 0.0 9.9 4.8 3.5

Domestic production activities deduction 0.0 0.0 0.0 2.2 5.0 8.3

Other adjustmentsb1.5 1.9 1.6 1.3 1.1 1.5

Source: Table 1.4 in Statistics of Income, Individual Income Tax Returns Publication 1304 (Complete Report), available at http://www.irs.gov/uac/SOI-TaxStats-Individual-Income-Tax-Returns-Publication-1304-(Complete-Report)#_sec4.

Notes: IRA = Individual Retirement Account.

a. The components of the statutory adjustments not listed in Table 1A are educator expenses; certain business expenses of reservists, performing artists, and 

fee-based government officials; interest and penalties on early withdrawal of savings; Archer medical savings account deduction; and the foreign housing 

deduction. In 2012, these excluded components cumulatively account for less than 1.6 percent of total statutory adjustments.

b. In 2012, other adjustments include the amount of jury duty pay reported on line 21 of IRS Form 1040 that was repaid by employers, deductible expenses 

related to income on line 21 of IRS Form 1040 from the rental of personal property engaged in for profit, repayments of supplemental unemployment 

compensation, contributions to section 501(c)18(D) pension plans, contributions by certain chaplains to section 403(b) plans, attorney fees and court costs 

paid for actions involving certain unlawful discrimination claims (but only to the extent of gross income from such actions), and attorney fees and court costs 

paid in connection with an award from the IRS for information provided that helped the IRS detect tax law violations (but only to the amount of the award 

includable in gross income).
48

Table 1B. How Much of NIPA Personal Income is Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Personal Income 5646.9 7075.0 8987.1 10609.4 12087.5 13887.8

Less: Methodological Adjustmentsa

210.9 367.4 597.9 670.1 799.3 1080.0

Equals: NIPA Personal Income less 

Methodological Adjustments 5436.0 6707.6 8389.2 9939.3 11288.2 12807.8

Less: Components of Personal Income

Excluded or Deferred from Tax 1976.8 2316.6 2833.8 3601.3 4502.9 5004.8

Nontaxable personal current transfer receipts 723.6 859.3 1054.2 1346.2 1823.8 2032.1

Employer contributions for insurance funds 293.2 303.1 425.1 583.2 633.5 682.2

Private group health insurance 234.3 248.7 359.0 487.8 552.7 597.2

Other 58.9 54.4 66.1 95.4 80.8 85.0

Investment income of life insurance carriers and 

pension plans 391.2 478.3 504.9 565.8 727.3 752.2

Investment income received by nonprofit 

institutions or retained by fiduciaries 62.3 87.0 83.1 95.0 93.9 118.2

Other personal income exempt or excluded from 

adjusted gross incomeb 96.5 108.6 129.8 190.2 220.9 240.3

Employee contributions to employer-sponsored 

health insurance 86.0 91.3 131.8 170.2 219.8 238.5

IRA-Keogh excluding capital gains 65.9 62.0 73.8 113.1 150.8 248.3

TSP (employee portion) 3.5 4.8 6.7 14.4 16.7 18.1

401k/403b/408k (employee portion) 46.1 76.9 115.2 139.9 172.2 196.7

Employer contributions for employee pension 

funds 208.5 245.2 309.0 383.5 444.1 478.2

Defined benefit 155.1 176.3 219.4 272.9 311.2 328.7

Defined contribution 53.4 68.9 89.3 110.6 133.1 149.5
49

Table 1B. How Much of NIPA Personal Income is Subject to Tax?, Billions of U.S. Dollars, Cont’d.

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

Less: Adjustments for Misreporting on 

Income Tax Returns 187.1 280.4 386.2 479.4 443.9 533.9

Equals: BEA-derived Current Income AGI 3272.2 4110.6 5169.2 5858.6 6341.4 7269.2

Plus: Portion of AGI not included in Personal 

Income

651.4 1086.0 1287.9 1930.5 1597.1 2177.8

Payroll tax adjustment (employee and selfemployed contributions for government social 

insurance)

237.7 297.6 375.2 445.2 506.3 437.3

Net gains from sale of assets 140.3 354.6 324.6 671.7 213.5 613.5

Taxable pensions 194.0 259.7 338.7 420.1 523.3 612.5

S-corporation income 51.1 102.6 130.6 250.7 205.4 321.2

Other types of income 28.2 71.4 118.7 142.8 148.5 193.3

Equals: BEA-derived AGI 3923.5 5196.7 6457.1 7789.1 7938.4 9447.0

(As a Percent of NIPA Personal Income less 

Methodological Adjustments)

Components of Personal Income Excluded or 

Deferred from Tax 36.4 34.5 33.8 36.2 39.9 39.1

Nontaxable personal current transfer receipts 13.3 12.8 12.6 13.5 16.2 15.9

Employer contributions for insurance funds 5.4 4.5 5.1 5.9 5.6 5.3

Investment income of life insurance carriers 

and pension plans 7.2 7.1 6.0 5.7 6.4 5.9

Employee contributions to employer-sponsored 

health insurance 1.6 1.4 1.6 1.7 1.9 1.9

401k/403b/408k (employee portion) 0.8 1.1 1.4 1.4 1.5 1.5

Employer contributions for employee pension 

funds 3.8 3.7 3.7 3.9 3.9 3.7
50

Table 1B. How Much of NIPA Personal Income is Subject to Tax?, Billions of U.S. Dollars, Cont’d.

1993 1997 2001 2005 2009 2012

(As a Percent of NIPA Personal Income less 

Methodological Adjustments)

Adjustments for Misreporting on Income Tax 

Returns 3.4 4.2 4.6 4.8 3.9 4.2

BEA-derived Current Income AGI 60.2 61.3 61.1 58.9 56.2 56.8

Portion of AGI not included in Personal Income 12.0 16.2 15.4 19.4 14.1 17.0

Payroll tax adjustment (employee and selfemployed contributions for government social 

insurance)

4.4 4.4 4.5 4.5 4.5 3.4

Net gains from sale of assets 2.6 5.3 3.9 6.8 1.9 4.8

Taxable pensions 3.6 3.9 4.0 4.2 4.6 4.8

S-corporation income 0.9 1.5 1.6 2.5 1.8 2.5

Other types of income 0.5 1.1 1.4 1.4 1.3 1.5

BEA-derived AGI 72.2 77.5 77.0 78.4 70.3 73.8

IRS AGI 68.5 74.1 73.6 74.7 67.6 71.1

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRA = Individual Retirement Account. Otherwise see notes to Table 1. 

a. Methodological adjustments include imputed income in personal income, Non-schedule E partnership income, S-corporation dividends in personal income, 

and differences in accounting treatment between NIPA and tax regulations. Differences in accounting treatment between NIPA and tax regulations arise 

because of differences between NIPA accounting and income tax accounting (e.g., because of differences in the valuation of inventories and depreciation) 

for the income included in NIPA personal income and IRS AGI. Table 3 through Table 6 in Section III discuss the components of this reconciliation item in 

greater detail. In Table 1B, differences in accounting treatment between NIPA and tax regulations exclude the earnings, excluding capital gains, of IRA and 

Keogh plans.

b. In Table 1B, “other personal income exempt or excluded from adjusted gross income” under components of personal income excluded or deferred from tax

includes statutory adjustments, exempt military pay, and tax-exempt interest. It excludes employee contributions to the federal government’s TSP and to 

private defined contribution (401k/403b/408k) plans, which are included separately under components of personal income excluded or deferred from tax.
51

Table 1C. How Much of NIPA Personal Income is Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Personal Income 5646.9 7075.0 8987.1 10609.4 12087.5 13887.8

Less: Methodological Adjustmentsa

148.5 190.5 327.1 187.0 477.9 434.2

Equals: NIPA Personal Income less 

Methodological Adjustments 5498.4 6884.5 8660.0 10422.4 11609.6 13453.6

Less: Nontaxable Personal Current Transfer 

Receipts 723.6 859.3 1054.2 1346.2 1823.8 2032.1

Plus: Payroll Tax Adjustment (total 

contributions for government social insurance)

477.4 587.2 733.2 873.3 964.4 951.2

Equals: Net Market Income 5252.3 6612.4 8338.9 9949.5 10750.3 12372.7

Less: Components of Personal Income Excluded 

or Deferred from Tax 1492.9 1746.8 2137.6 2683.2 3137.3 3486.6

Employer contributions for insurance funds 293.2 303.1 425.1 583.2 633.5 682.2

Investment income of life insurance carriers and 

pension plans 391.2 478.3 504.9 565.8 727.3 752.2

Investment income received by nonprofit institutions 

or retained by fiduciaries 62.3 87.0 83.1 95.0 93.9 118.2

Other personal income exempt or excluded from 

adjusted gross incomeb 96.5 108.6 129.8 190.2 220.9 240.3

Employee contributions to employer-sponsored 

health insurance 86.0 91.3 131.8 170.2 219.8 238.5

Payroll tax adjustment (employer contributions for 

government social insurance)

239.7 289.6 358.0 428.1 458.1 513.9

IRA-Keogh excluding capital gains 65.9 62.0 73.8 113.1 150.8 248.3

TSP (employee portion) 3.5 4.8 6.7 14.4 16.7 18.1

401k/403b/408k (employee portion) 46.1 76.9 115.2 139.9 172.2 196.7

Employer contributions for employee pension funds 208.5 245.2 309.0 383.5 444.1 478.2
52

Table 1C. How Much of NIPA Personal Income is Subject to Tax?, Billions of U.S. Dollars, Cont’d.

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

Less: Business Income Adjustments 198.4 354.7 526.3 711.8 559.9 858.5

Non-schedule E partnership income 12.2 58.9 90.5 215.1 47.3 268.1

Adjustment for S-corporation incomec-0.9 15.4 49.6. 17.3 68.7 56.5

Adjustments for Misreporting on Income Tax 

Returns 187.1 280.4 386.2 479.4 443.9 533.9

Plus: Portion of AGI not included in Personal 

Incomed 362.5 685.8 782.0 1234.6 885.3 1419.3

Net gains from sale of assets 140.3 354.6 324.6 671.7 213.5 613.5

Taxable pensions 194.0 259.7 338.7 420.1 523.3 612.5

Other types of incomee28.2 71.4 118.7 142.8 148.5 193.3

Equals: BEA-derived AGI 3923.5 5196.7 6457.1 7789.1 7938.4 9447.0

(As a Percent of Net Market Income)

Components of Personal Income Excluded or 

Deferred from Tax 28.4 26.4 25.6 27.0 29.2 28.2

Business income adjustments 3.8 5.4 6.3 7.2 5.2 6.9

Portion of AGI not included in Personal Income 6.9 10.4 9.4 12.4 8.2 11.5

Net gains from sale of assets 2.7 5.4 3.9 6.8 2.0 5.0

Taxable pensions 3.7 3.9 4.1 4.2 4.9 5.0

Other types of income 0.5 1.1 1.4 1.4 1.4 1.6

BEA-derived AGI 74.7 78.6 77.4 78.3 73.8 76.4

IRS AGI 70.9 75.2 74.0 74.6 70.9 73.6

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRA = Individual Retirement Account. Otherwise see notes to Table 1. 
53

a. Methodological adjustments include imputed income in personal income and differences in accounting treatment between NIPA and tax regulations. 

Differences in accounting treatment between NIPA and tax regulations arise because of differences between NIPA accounting and income tax accounting 

(e.g., because of differences in the valuation of inventories and depreciation) for the income included in NIPA personal income and IRS AGI. Table 3 

through Table 6 in Section III discuss the components of this reconciliation item in greater detail. In Table 1C, differences in accounting treatment between 

NIPA and tax regulations exclude the earnings, excluding capital gains, of IRA and Keogh plans.

b. In Table 1C, “other personal income exempt or excluded from adjusted gross income” under components of personal income excluded or deferred from tax 

includes statutory adjustments (see Table 1A for the components of statutory adjustments), exempt military pay, and tax-exempt interest. It excludes 

employee contributions to the federal government’s TSP and to private defined contribution (401k/403b/408k) plans, which are listed separately under 

components of personal income exclude or deferred from tax.

c. The adjustment for S-corporation income is the difference between S-corporation dividends in personal income and S-corporation income. Both Scorporation dividends in personal income and S-corporation income are explained in greater detail in Section III.

d. In Table 1B, the portion of AGI not included in personal income also includes employee and self-employed contributions for government social insurance 

and S-corporation income. In Table 1C, it excludes employee and self-employed contributions for government social insurance and S-corporation income. In 

Table 1C, employee and self-employed contributions for government social insurance are obtained by taking the difference between total contributions for 

government social insurance and employer contributions for government social insurance (listed among components of personal income excluded or 

deferred from tax).

e. Under the portion of AGI not included in personal income, other types of income include supplemental unemployment insurance benefits, the foreign-earned 

income of U.S citizens living abroad for more than one year, and miscellaneous other types of income that are included in AGI but not NIPA personal 

income (e.g., alimony received, state income tax refunds).
54

Table 1D. Decomposition of 2012 BEA-Derived AGI

Personal Income

AGI not in 

Personal 

Income Total b

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGIa

(Billions of U.S. Dollars)

NIPA Personal Income 13887.8 8606.5 1260.2 533.0 2088.6 307.2 1080.9 11.4

Less: Methodological 

Adjustments 1080.0 18.1 129.2 351.2 581.4

Equals: NIPA Personal 

Income less Methodological 

Adjustments

12807.8 8588.4 1131.0 181.8 1507.2 307.2 1080.9 11.4

Less: Components of 

Personal Income Excluded 

or Deferred from Tax

5004.8 1648.9 8.7 13.7 1167.3 2166.1

Nontaxable personal current 

transfer receipts 2032.1 2032.1

Employer contributions for 

insurance funds 682.2 682.2

Private group health 

insurance 597.2 597.2

Other 85.0 85.0

Investment income of life 

insurance carriers and pension 

plans

752.2 -0.2 752.4

Investment income received by 

nonprofit institutions or 

retained by fiduciaries

118.2 8.7 13.9 95.5

Other personal income exempt 

or excluded from adjusted 

gross income

240.3 35.2 71.1 134.0
55

Table 1D. Decomposition of 2012 BEA-Derived AGI, Cont’d.

Personal Income

AGI not in 

Personal 

Income Total b

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGIa

(Billions of U.S. Dollars)

Employee contributions to 

employer-sponsored health 

insurance

238.5 238.5

IRA-Keogh excluding capital 

gains 248.3 248.3

TSP (employee portion) 18.1 18.1

401k/403b/408k (employee 

portion) 196.7 196.7

Employer contributions for 

employee pension funds 478.2 478.2

Defined benefit 328.7 328.7

Defined contribution 149.5 149.5

Less: Adjustments for 

Misreporting on Income Tax 

Returns

533.9 533.9

Equals: BEA-derived 

Current Income AGI 7269.2 6939.5 588.4 168.0 339.9 307.2 -1085.2 11.4

Plus: Portion of AGI not 

included in Personal Income 2177.8 -452.1 3.7 951.2 1675.0

Equals: BEA-derived AGI 9447.0 6487.4 592.0 168.0 339.9 307.2 -134.0 1686.4
56

Table 1D. Decomposition of 2012 BEA-Derived AGI, Cont’d.

Personal Income

AGI not in 

Personal 

Income Total b

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGIa

(As a Percent of NIPA 

Personal Income less 

Methodological 

Adjustments)

Components of Personal 

Income Excluded or Deferred

from Tax

39.1 19.2 0.8 7.6 77.4

Adjustments for Misreporting 

on Income Tax Returns 4.2 0.0 47.2 0.0 0.0

BEA-derived Current Income 

AGI 56.8 80.8 52.0 92.4 22.6

Portion of AGI not included in 

Personal Income 17.0 -5.3 0.3 0.0 0.0

BEA-derived AGI 73.8 75.5 52.3 92.4 22.6

IRS AGI 71.1 73.4 45.3 29.2 24.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1 and Table 1B. Table B1 in Appendix B provides a more detailed decomposition of 2012 BEA-derived AGI by source.

a. Other personal income not in AGI includes nontaxable personal current transfer receipts (government and business), statutory adjustments, and total 

(employer and employee) contributions for government social insurance.

b. AGI not in personal income includes net gains from the sale of assets, taxable pensions, S-corporation income, and other types of income.
57

Table 1E. Changes in the Composition of NIPA Personal Income

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Personal Income less Methodological 

Adjustments 5436.0 6707.6 8389.2 9939.3 11288.2 12807.8

Compensation of Employees 3812.6 4705.6 6036.4 7073.8 7770.1 8588.4

Nonfarm Proprietors’ Income 387.5 536.7 700.3 905.0 840.6 1067.8

Farm Proprietors’ Income 37.4 26.2 25.3 39.2 26.9 63.2

Rental Income 54.8 65.7 61.6 67.2 118.5 181.8

Personal Income Receipts on Assets 830.4 1011.4 110.7 1215.4 1356.2 1507.2

Othera313.4 362.0 454.9 638.7 1175.8 1399.5

BEA-derived AGI 3923.5 5196.7 6457.1 7789.0 7938.5 9446.9

BEA-derived Salaries and Wages 2942.2 3713.7 4703.8 5373.6 5847.0 6487.3

BEA-derived Net Income (Less Loss) of 

Nonfarm Proprietorships and Partnerships 197.4 252.7 312.0 423.1 392.6 528.8

BEA-derived Net Income (Less Loss) of Farms 37.4 26.2 25.3 39.2 26.9 63.2

BEA-derived Total Rental and Royalty Net 

Income (Less Loss) 50.6 58.9 54.0 60.2 109.5 168.0

BEA-derived Taxable Interest Income and 

Dividend Income 272.4 346.3 404.3 395.5 326.8 339.9

Othera423.6 798.8 957.7 1497.5 1235.7 1859.6

IRS AGI 3723.3 4969.9 6170.6 7422.5 7626.4 9100.1

IRS Salaries and Wages 2892.1 3613.9 4565.2 5155.4 5707.1 6301.4

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 197.4 252.4 311.2 421.3 384.6 518.0

IRS Net Income (Less Loss) of Farms -3.7 -6.8 -11.0 -12.2 -14.1 -5.5

IRS Total Rental and Royalty Net Income (Less 

Loss) 13.4 22.4 32.9 28.2 22.5 53.1

IRS Taxable Interest Income and Dividend 

Income 210.9 292.2 317.7 328.9 331.5 372.2

Othera413.2 795.9 954.5 1500.8 1194.9 1861.0
58

Table 1E. Changes in the Composition of NIPA Personal Income, Cont’d.

1993 1997 2001 2005 2009 2012

As a Percent of Total NIPA Personal Income

less Methodological Adjustments

Compensation of Employees 70.1 70.2 72.0 71.2 68.8 67.1

Nonfarm Proprietors’ Income 7.1 8.0 8.3 9.1 7.4 8.3

Farm Proprietors’ Income 0.7 0.4 0.3 0.4 0.2 0.5

Rental Income 1.0 1.0 0.7 0.7 1.1 1.4

Personal Income Receipts on Assets 15.3 15.1 13.2 12.2 12.0 11.8

Othera5.8 5.4 5.4 6.4 10.4 10.9

As a Percent of Total BEA-derived AGI

BEA-derived Salaries and Wages 75.0 71.5 72.8 69.0 73.7 68.7

Income and BEA-derived Net Income (Less 

Loss) of Nonfarm Proprietorships and 

Partnerships

5.0 4.9 4.8 5.4 4.9 5.6

BEA-derived Net Income (Less Loss) of Farms 1.0 0.5 0.4 0.5 0.3 0.7

BEA-derived Total Rental and Royalty Net 

Income (Less Loss) 1.3 1.1 0.8 0.8 1.4 1.8

BEA-derived Taxable Interest Income and 

Dividend Income 6.9 6.7 6.3 5.1 4.1 3.6

Othera10.8 15.4 14.8 19.2 15.6 19.7

As a Percent of Total IRS AGI

IRS Salaries and Wages 77.7 72.7 74.0 69.5 74.8 69.2

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 5.3 5.1 5.0 5.7 5.0 5.7

IRS Net Income (Less Loss) of Farms -0.1 -0.1 -0.2 -0.2 -0.2 -0.1

IRS Total Rental and Royalty Net Income (Less 

Loss) 0.4 0.5 0.5 0.4 0.3 0.6

IRS Taxable Interest Income and Dividend 

Income 5.7 5.9 5.1 4.4 4.3 4.1

Othera11.1 16.0 15.5 20.2 15.7 20.5
59

Table 1E. Changes in the Composition of NIPA Personal Income, Cont’d.

1993 1997 2001 2005 2009 2012

BEA-derived AGI as a Percent of NIPA 

Personal Income less Methodological 

Adjustments (by income source)

BEA-derived Salaries and Wages 77.2b78.9 77.9 76.0 75.3 75.5

BEA-derived Net Income (Less Loss) of 

Nonfarm Proprietorships and Partnerships 51.0 47.1 44.5 46.8 46.7 49.5

BEA-derived Net Income (Less Loss) of Farms 100.0 100.0 100.0 100.0 100.0 100.0

BEA-derived Total Rental and Royalty Net 

Income (Less Loss) 92.2 89.7 87.6 89.5 92.4 92.4

BEA-derived Taxable Interest Income and 

Dividend Income 32.8 34.2 36.4 32.5 34.1 22.6

Othera

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRA = Individual Retirement Account. Otherwise see notes to Table 1. 

a. Following Table 1D, “other” in Table 1E is the sum of taxable unemployment compensation and social security, other personal income not in AGI, and AGI 

not in personal income.

b. Calculated as BEA-derived salaries and wages divided by NIPA compensation of employees less methodological adjustments. Hence 100 * 2942.2 / 3812.6 

= 77.2 percent.
60

Table 2. Reconciliation of NIPA Compensation of Employees and IRS Salaries and Wages, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Compensation of Employees 3820.7 4714.7 6046.5 7086.9 7787.0 8606.5

Less: Portion of Personal Income not 

included in AGI

Employer contributions for employee pension 

and insurance funds 501.7 548.3 734.1 966.8 1077.5 1160.5

Imputed income in personal incomea8.1 9.1 10.1 13.1 16.9 18.1

Other personal income exempt or excluded from 

adjusted gross income 63.0 94.3 135.6 177.4 223.2 250.0

Exempt military pay 13.4 12.6 13.7 23.1 34.3 35.2

TSP (employee portion) 3.5 4.8 6.7 14.4 16.7 18.1

401k/403b/408k (employee portion) 46.1 76.9 115.2 139.9 172.2 196.7

Employee contributions to employer-sponsored 

health insuranceb 86.0 91.3 131.8 170.2 219.8 238.5

Plus: Portion of AGI not included in Personal 

Income

Payroll tax adjustment (employer contributions 

for government social insurance) -239.7 -289.6 -358.0 -428.1 -458.1 -513.9

Other types of income 20.0 31.6 26.9 42.2 55.5 61.8

Equals: BEA-derived Salaries and Wages 2942.2 3713.7 4703.8 5373.6 5847.0 6487.3

IRS Salaries and Wages 2892.1 3613.9 4565.2 5155.4 5707.1 6301.4

Difference as a Percent of BEA-derived 

Salaries and Wages 1.7 2.7 2.9 4.1 2.4 2.9

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. Imputed income in personal income includes food furnished to employees, standard clothing issued to military personnel, and employees’ lodging.

b. This adjustment is not among the reconciliation items included in the discontinued NIPA Table 7.19. It is added to reduce the gap between BEA-derived 

AGI and IRS AGI.
61

Table 2A. Components of NIPA Supplements to Wages and Salaries, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

Employer Contributions for Employee Pension and Insurance Funds 501.7 548.3 734.1 966.7 1077.6 1160.4

Federal pension plans (civilian and military) 32.2 30.2 34.4 43.9 56.3 67.8

Federal defined benefit pension plans 30.7 28.0 31.1 39.3 50.0 60.1

Federal defined contribution pension plans 1.4 2.2 3.2 4.6 6.3 7.7

State and local employee retirement 69.6 88.5 117.9 158.2 184.6 200.2

State and local defined benefit pension plans 67.3 84.9 112.1 150.1 174.4 190.1

State and local defined contribution pension plans 2.4 3.6 5.7 8.1 10.3 10.1

Private pension plans 106.7 126.5 156.7 181.4 203.2 210.2

Private defined benefit pension plans 57.1 63.4 76.2 83.5 86.8 78.5

Private defined contribution pension plans 49.6 63.1 80.4 97.9 116.5 131.7

Private group health insurance 234.3 248.7 359.0 487.8 552.7 597.2

Publicly administered government employee insurance funds 0.0 0.0 0.0 10.8 10.8 10.5

Private group life insurance 8.6 10.8 13.0 13.2 11.1 12.4

Private workers' compensation 47.0 41.4 52.2 70.9 57.9 61.6

Private supplemental unemployment insurance 3.3 2.2 0.9 0.5 1.0 0.5

Employer Contributions for Government Social Insurance 239.5 289.4 357.8 428.0 458.0 513.7

Old-age, survivors, and disability (OASDI) insurance 153.2 191.5 243.8 276.8 307.6 332.5

Railroad retirement and pension benefit guaranty 3.5 3.7 3.7 3.8 5.1 5.9

Federal health insurance 40.3 54.1 69.1 78.9 86.3 95.7

State, federal, and railroad unemployment insurance 28.0 28.1 27.6 43.8 38.9 59.2

Federal and state workers' compensation 12.9 11.1 12.3 21.6 15.2 14.8

Othera1.6 0.9 1.3 3.1 4.9 5.6

Total Supplements to Wages and Salaries 741.2 837.7 1091.9 1394.7 1535.6 1674.1

Total Compensation of Employees 3820.7 4714.7 6046.5 7086.8 7787.0 8606.5

Source: NIPA Table 7.8, NIPA Table 7.22 through NIPA Table 7.25

Notes: NIPA = National Income and Product Accounts.

a. Other includes veterans life insurance, military medical insurance, and temporary disability insurance.
62

Table 2B. Components of Imputed Income in NIPA Compensation of Employees, Percent of Total Imputed Income

1993 1997 2001 2005 2009 2012

Food furnished to employees, including 

military and domestic service 90.1 90.1 90.1 92.4 92.3 94.5

Standard clothing issued to military personnel 3.7 3.3 3.0 3.1 3.0 2.2

Employees' lodging 6.2 6.6 6.9 4.6 4.7 3.3

Source: Line 203 though line 205 in NIPA Table 7.12 at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1. 

Notes: NIPA = National Income and Product Accounts.
63

Table 2C. How Much of NIPA Compensation of Employees is Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Compensation of Employees 3820.7 4714.7 6046.5 7086.9 7787.0 8606.5

Less: Imputed Income in Personal Income 8.1 9.1 10.1 13.1 16.9 18.1

Equals: NIPA Compensation of Employees 

less Imputed Income 3812.6 4705.6 6036.4 7073.8 7770.1 8588.4

Less: Net Employer Contributions to Pension 

and Insurance Funds and Government Social 

Insurance

739.6 835.7 1091.3 1394.0 1534.8 1673.9

Employer contributions for employee pension 

and insurance funds 501.7 548.3 734.1 966.8 1077.5 1160.5

Pension fundsa208.5 245.2 309.0 383.5 444.1 478.2

Defined benefit 155.1 176.3 219.4 272.9 311.2 328.7

Defined contribution 53.4 68.9 89.3 110.6 133.1 149.5

Insurance fundsb293.2 303.1 425.1 583.2 633.5 682.2

Private group health insurance 234.3 248.7 359.0 487.8 552.7 597.2

Other insurance 58.9 54.4 66.1 95.4 80.8 85.0

Payroll tax adjustment (employer contributions 

for government social insurance)

239.7 289.6 358.0 428.1 458.1 513.9

Supplemental unemployment insurance -1.8 -2.2 -0.8 -0.9 -0.8 -0.5

Less: Other Untaxed or Deferred 

Components of NIPA Compensation of 

Employees

149.0 185.6 267.5 347.5 443.0 488.5

Exempt military pay 13.4 12.6 13.7 23.1 34.3 35.2

TSP (employee portion) 3.5 4.8 6.7 14.4 16.7 18.1

401k/403b/408k (employee portion) 46.1 76.9 115.2 139.9 172.2 196.7

Employee contributions to employer-sponsored 

health insurance 86.0 91.3 131.8 170.2 219.8 238.5
64

Table 2C. How Much of NIPA Compensation of Employees is Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

Equals: BEA-derived Salaries and Wages 

(Domestic) 2923.9 3684.4 4677.7 5332.2 5792.3 6426.0

IRS Salaries and Wages 2892.1 3613.9 4565.2 5155.4 5707.1 6301.4

Less: Foreign-Earned Income of U.S. Citizens 

Living Abroad for More Than 1 Year 18.2 29.4 26.1 41.3 54.8 61.3

Equals: IRS Salaries and Wages (Domestic) 2873.9 3584.5 4539.1 5114.1 5652.3 6240.1
65

Table 2C. How Much of NIPA Compensation of Employees is Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

(As a Percent of NIPA Compensation of 

Employees less Imputed Income)

Net Employer Contributions to Pension and 

Insurance Funds and Government Social 

Insurance

19.4 17.8 18.1 19.7 19.8 19.5

Employer contributions for employee pension 

and insurance funds 13.2 11.7 12.2 13.7 13.9 13.5

Defined benefit pension funds 4.1 3.7 3.6 3.9 4.0 3.8

Defined contribution pension funds 1.4 1.5 1.5 1.6 1.7 1.7

Private group health insurance 6.1 5.3 5.9 6.9 7.1 7.0

Other insurance 1.5 1.2 1.1 1.3 1.0 1.0

Payroll tax adjustment (employer contributions 

for government social insurance)

6.3 6.2 5.9 6.1 5.9 6.0

Other Untaxed or Deferred Components of 

NIPA Compensation of Employees 3.9 3.9 4.4 4.9 5.7 5.7

Exempt military pay 0.4 0.3 0.2 0.3 0.4 0.4

TSP (employee portion) 0.1 0.1 0.1 0.2 0.2 0.2

401k/403b/408k (employee portion) 1.2 1.6 1.9 2.0 2.2 2.3

Employee contributions to employer-sponsored 

health insurance 2.3 1.9 2.2 2.4 2.8 2.8

BEA-derived Salaries and Wages (Domestic) 76.7 78.3 77.5 75.4 74.5 74.8

IRS Salaries and Wages (Domestic) 75.4 76.2 75.2 72.3 72.7 72.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 2.

a. See Table 2A. Employer contributions for pension funds include employer contributions to federal pension plans, state and local employee retirement, and 

private pension plans.

b. See Table 2A. Employer contributions for insurance funds include employer contributions for private group health insurance (by far the largest component), 

publicly administered government employee insurance funds, private group life insurance, private workers’ compensation, and private supplemental 

unemployment insurance.
66

Table 3. Reconciliation of NIPA Nonfarm Proprietors’ Income and IRS Net Income (Less Loss) of Business and Professions 

and Partnerships, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Nonfarm Proprietors’ Income 399.2 555.5 804.7 932.6 937.5 1187.9

Less: Portion of Personal Income not 

included in AGI

Investment income received by nonprofit 

institutions or retained by fiduciaries 3.6 4.5 3.4 4.6 7.1 8.7

Fiduciary Income 1.0 1.2 1.4 1.5 1.5 1.8

Nonprofit Income 2.6 3.3 2.0 3.1 5.6 6.9

Differences in accounting treatment between 

NIPA and tax regulations, net -0.4 -40.1 14.0 -187.6 49.6 -148.0

Inventory valuation adjustment -0.4 1.0 1.0 -4.6 -4.6 -10.0

Nonfarm (or farm) proprietors’ incomea-18.9 -70.3 -61.0 -249.3 -86.1 -297.1

Capital consumption adjustment 18.9 29.2 74.0 66.3 140.3 159.1

Non-schedule E partnership incomeb12.2 58.9 90.5 215.1 47.3 268.1

Adjustments for misreporting on income tax 

returnsb 187.1 280.4 386.2 479.4 443.9 533.9

Plus: Portion of AGI not included in Personal 

Income

Other types of income 0.7 0.9 1.3 2.1 3.0 3.7

Equals: BEA-derived Net Income (Less Loss) 

of Nonfarm Proprietorships and Partnerships

197.4 252.7 312.0 423.1 392.6 528.8

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 197.4 252.4 311.2 421.3 384.6 518.0

Difference as a Percent of BEA-derived Net 

Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships

0.0 0.1 0.2 0.4 2.0 2.0

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.
67

a. Table 3 consolidates a number of adjustments from NIPA Table 7.14 under the heading nonfarm proprietors’ income. Those adjustments include posttabulation amendments and revisions, depletion of domestic minerals, an adjustment to depreciate expenditures for mining exploration, shafts, and wells, bad 

debt expense, an adjustment to depreciate expenditures for intellectual property products, and a net disaster adjustment (see Table 3A).

b. This adjustment is not among the reconciliation items included in the discontinued NIPA Table 7.19. It is added to reduce the gap between BEA-derived 

AGI and IRS AGI.
68

Table 3A. Components of “Nonfarm Proprietors’ Income” under Differences in Accounting Treatment between NIPA and 

Tax Regulations, Net, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

Post-tabulation amendments and 

revisionsa -24.2 -84.6 -90.3 -296.5 -129.8 -340.5

Depletion on domestic minerals 0.8 0.9 1.1 1.9 1.4 2.2

Adjustment to depreciate 

expenditures for mining 

exploration, shafts, and wells

-1.2 2.9 6.5 25.5 -4.0 12.0

Bad debt expense 3.7 6.9 13.4 15.3 40.3 25

Adjustment to depreciate 

expenditures for intellectual 

property products

2.0 3.6 8.4 7.1 6.0 5.5

Disaster adjustments (net) 0.0 0.0 -0.1 -2.6 0.0 -1.3

Total: Nonfarm proprietors’ 

income (from Table 3) -18.9 -70.3 -61.0 -249.3 -86.1 -297.1

Source: See line 3 though line 6 and line 9 through line 10 in NIPA Table 7.14 at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1.

Notes: NIPA = National Income and Product Accounts.

a. Post-tabulation amendments and revisions account for several adjustments to IRS net profit (less loss) of nonfarm proprietorships and partnerships, plus 

payments to partners, including adjustments for portfolio interest (for interest received by financial partnerships), corporate partners net interest (reflecting 

the inclusion of corporate partnership income in corporate profits and not nonfarm proprietors’ income), double counting (for interest received by 

partnerships from other partnerships), meals and entertainment, and foreign distributions (removing from partnership income any income that is from a 

foreign source). For a description of each adjustment, see Table 11.4 (pp. 11-16 and 11-17) in U.S. Bureau of Economic Analysis (2015), NIPA Handbook: 

Concepts and Methods of the U.S. National Income and Product Accounts, available at http://www.bea.gov/methodologies/index.htm#national_meth.
69

Table 3B. How Much of NIPA Nonfarm Proprietors’ Income is Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Nonfarm Proprietors’ Income 399.2 555.5 804.7 932.6 937.5 1187.9

Less: Methodological Adjustments 11.7 18.8 104.4 27.6 96.9 120.1

Differences in accounting treatment between 

NIPA and tax regulations, net -0.4 -40.1 14.0 -187.6 49.6 -148.0

Inventory valuation adjustment -0.4 1.0 1.0 -4.6 -4.6 -10.0

Nonfarm (or farm) proprietors’ income -18.9 -70.3 -61.0 -249.3 -86.1 -297.1

Capital consumption adjustment 18.9 29.2 74.0 66.3 140.3 159.1

Non-schedule E partnership income 12.2 58.9 90.5 215.1 47.3 268.1

Equals: NIPA Nonfarm Proprietors’ Income 

less Methodological Adjustments 387.5 536.7 700.3 905.0 840.6 1067.8

Less: Untaxed or Deferred Components of 

NIPA Nonfarm Proprietors’ Income 3.6 4.5 3.4 4.6 7.1 8.7

Investment income received by nonprofit 

institutions or retained by fiduciaries 3.6 4.5 3.4 4.6 7.1 8.7

Fiduciary Income 1.0 1.2 1.4 1.5 1.5 1.8

Nonprofit Income 2.6 3.3 2.0 3.1 5.6 6.9

Less: Adjustments for Misreporting on 

Income Tax Returns 187.1 280.4 386.2 479.4 443.9 533.9

Plus: Foreign-earned Self-Employment 

Income 0.7 0.9 1.3 2.1 3.0 3.7

Equals: BEA-derived Net Income (Less Loss) 

of Nonfarm Proprietorships and Partnerships

197.4 252.7 312.0 423.1 392.6 528.8

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 197.4 252.4 311.2 421.3 384.6 518.0
70

Table 3B. How Much of NIPA Nonfarm Proprietors’ Income is Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

(As a Percent of NIPA Nonfarm Proprietors’ 

Income less Methodological Adjustments)

Untaxed or Deferred Components of NIPA 

Personal Income Receipts on Assets 0.9 0.8 0.5 0.5 0.8 0.8

Investment income received by nonprofit 

institutions or retained by fiduciaries 0.9 0.8 0.5 0.5 0.8 0.8

Fiduciary Income 0.3 0.2 0.2 0.2 0.2 0.2

Nonprofit Income 0.7 0.6 0.3 0.3 0.7 0.6

Adjustments for Misreporting on Income Tax 

Returns 48.3 52.2 55.2 53.0 52.8 50.0

BEA-derived Net Income (Less Loss) of 

Nonfarm Proprietorships and Partnerships

51.0 47.1 44.5 46.8 46.7 49.5

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 51.0 47.0 44.4 46.5 45.8 48.5

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 3.
71

Table 3C. How Much of S-Corporation Income and NIPA Nonfarm Proprietors’ Income are Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Nonfarm Proprietors’ Income 399.2 555.5 804.7 932.6 937.5 1187.9

Less: Methodological Adjustments -0.4 -40.1 14.0 -187.6 49.6 -148.0

Inventory valuation adjustment -0.4 1.0 1.0 -4.6 -4.6 -10.0

Nonfarm (or farm) proprietors’ income -18.9 -70.3 -61.0 -249.3 -86.1 -297.1

Capital consumption adjustment 18.9 29.2 74.0 66.3 140.3 159.1

Plus: S-Corporation Dividends in Personal 

Income 50.2 118.1 180.3 268.0 274.2 377.7

Equals: S-Corporation Dividends and NIPA 

Nonfarm Proprietors’ Income less 

Methodological Adjustments

449.9 713.7 971.0 1388.2 1162.1 1713.5

Less: Untaxed or Deferred Components of 

NIPA Nonfarm Proprietors’ Income 3.6 4.5 3.4 4.6 7.1 8.7

Less: Adjustments for Misreporting on Income 

Tax Returns 187.1 280.4 386.2 479.4 443.9 533.9

Less: Adjustments for S-corporation and 

Partnership Differences 11.3 74.3 140.1 232.4 116.0 324.6

Non-schedule E partnership income 12.2 58.9 90.5 215.1 47.3 268.1

Adjustment for S-corporation incomea-0.9 15.4 49.6 17.3 68.7 56.5

Less: Statutory Adjustments 22.1 29.0 39.4 66.0 70.2 85.2

Deductible part of the self-employment tax 11.9 14.9 18.1 22.7 23.8 27.5

Contributions to self-employed retirement plans 8.2 10.2 13.1 21.3 18.9 20.8

Self-employed health insurance deduction 2.1 3.9 8.2 19.6 21.8 25.7

Domestic production activities deduction 0.0 0.0 0.0 2.4 5.7 11.2
72

Table 3C. How Much of S-Corporation Income and NIPA Nonfarm Proprietors’ Income are Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

Equals: S-Corporation Income and BEAderived Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships (Domestic)b

225.8 325.5 401.9 605.8 524.9 761.1

IRS Net Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships 197.4 252.4 311.2 421.3 384.6 518.0

Plus: S-Corporation Income 51.1 102.6 130.6 250.7 205.4 321.2

Less: Foreign-earned Self-Employment 

Income 0.7 0.9 1.3 2.1 3.0 3.7

Less: Statutory Adjustments 22.1 29.0 39.4 66.0 70.2 85.2

Adjusted IRS S-Corporation Income and Net 

Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships (Domestic)

225.8 325.2 401.1 603.9 516.9 750.3
73

Table 3C. How Much of S-Corporation Income and NIPA Nonfarm Proprietors’ Income are Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

(As a Percent of S-Corporation Dividends and 

NIPA Nonfarm Proprietors’ Income less 

Methodological Adjustments)

Untaxed or Deferred Components of NIPA 

Personal Income Receipts on Assets 0.8 0.6 0.4 0.3 0.6 0.5

Adjustments for Misreporting on Income Tax 

Returns 41.6 39.3 39.8 34.5 38.2 31.2

Adjustments for S-corporation and 

Partnership Differences 2.5 10.4 14.4 16.7 10.0 18.9

Statutory Adjustments 4.9 4.1 4.1 4.8 6.0 5.0

S-Corporation Income and BEA-derived Net 

Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships (Domestic)a

50.2 45.6 41.4 43.6 45.2 44.4

Adjusted IRS S-Corporation Income and Net 

Income (Less Loss) of Nonfarm 

Proprietorships and Partnerships (Domestic)

50.2 45.6 41.3 43.5 44.5 43.8

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 3.

a. The adjustment for S-corporation income is the difference between S-corporation dividends in personal income and S-corporation income. Both Scorporation dividends in personal income and S-corporation income are explained in greater detail later in Section III. Subtracting the adjustment for Scorporation income from S-corporation dividends in personal income gives S-corporation income.

b. Table 3C excludes foreign-earned self-employment income from BEA-derived net income (less loss) of nonfarm proprietorships and partnerships
74

Table 4. Reconciliation of NIPA Farm Proprietors’ Income and IRS Net Income (Less Loss) of Farms, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Farm Proprietors’ Income 31.4 32.4 32.1 46.4 35.5 72.3

Less: Portion of Personal Income not 

included in AGI

Imputed income in personal incomea0.2 0.2 0.1 0.2 0.1 0.2

Differences in accounting treatment between 

NIPA and tax regulations, net -6.2 6.0 6.7 7.0 8.5 8.9

Nonfarm (or farm) proprietors’ income 3.2 4.2 6.1 7.7 10.1 10.6

Excess farm inventories -6.2 3.2 0.0 0.2 -1.6 -8.6

Excess tax depreciation 0.7 2.1 3.3 2.4 4.9 10.5b

Capital consumption adjustment -5.5 -5.0 -4.6 -5.5 -6.4 -5.8

Gain on Section 1231 assets 1.6 1.5 1.9 2.2 1.6 2.2

Equals: BEA-derived Net Income (Less Loss) 

of Farms 37.4 26.2 25.3 39.2 26.9 63.2

IRS Net Income (Less Loss) of Farms -3.7 -6.8 -11.0 -12.2 -14.4 -5.5

Difference as a Percent of BEA-derived Net 

Income (Less Loss) of Farms 109.8 126.2 143.5 131.1 152.4 108.8

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. Imputed income in personal income includes farm products consumed on farms.

b. Excess tax depreciation was calculated for 2012 using 2011 data for the ratio of sole proprietorship and partnership IRS farm depreciation to total IRS farm 

depreciation. See the text for an explanation of the calculation of excess tax depreciation for Table 4.
75

Table 5. Reconciliation of NIPA Rental Income and IRS Total Rental and Royalty Net Income (Less Loss), Billions of U.S. 

Dollars

1993 1997 2001 2005 2009 2012

NIPA Rental Income 93.6 152.0 207.5 238.4 333.7 533.0

Less: Portion of Personal Income not 

included in AGI

Imputed income in personal incomea42.3 84.6 134.2 154.0 214.8 355.2

Investment income of life insurance carriers and 

pension plans 1.2 1.4 0.4 -0.1 -0.1 -0.2

Investment income received by nonprofit 

institutions or retained by fiduciaries 3.1 5.3 7.2 7.1 9.1 13.9

Fiduciary Income 1.3 2.1 2.9 2.2 1.8 3.9

Nonprofit Income 1.8 3.2 4.3 4.9 7.3 10.0

Differences in accounting treatment between 

NIPA and tax regulations, net -3.5 1.7 11.7 17.2 0.4 -4.0

Excess tax depreciation 4.7 10.9 23.2 32.9 15.0 10.1b

Capital consumption adjustment -8.2 -9.2 -11.5 -15.7 -14.6 -14.1

Equals: BEA-derived Total Rental and 

Royalty Net Income (Less Loss) 50.6 58.9 54.0 60.2 109.5 168.0

IRS Total Rental and Royalty Net Income 

(Less Loss) 13.4 22.4 32.9 28.2 22.5 53.1

Difference as a Percent of BEA-derived Total 

Rental and Royalty Net Income (Less Loss) 73.5 62.0 39.1 53.1 79.5 68.4

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. The imputed income in personal income includes rental income of persons from owner-occupied housing (net of subsidies).

b. Excess tax depreciation was calculated for 2012 using 2011 data for ratio of sole proprietorship and partnership IRS depreciation in North American Industry 

Classification System (NAICS) sector 531 to total IRS depreciation in NAICS sector 531. See the text for an explanation of the calculation of excess tax 

depreciation for Table 5.
76

Table 6. Reconciliation of NIPA Personal Income Receipts on Assetsaand IRS Taxable Interest Income and Dividend Income, 

Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Personal Income Receipts on Assets 988.6 1258.4 1441.4 1666.4 1818.0 2088.6

Less: Portion of Personal Income not included in 

AGI

Imputed income in personal incomeb108.0 128.9 150.4 183.0 187.6 203.7

Investment income of life insurance carriers and 

pension plans 390.0 476.9 504.5 565.9 727.4 752.4

Investment income received by nonprofit institutions 

or retained by fiduciaries 55.7 77.2 72.5 83.2 77.7 95.5

Fiduciary Income 23.6 31.4 34.0 38.0 38.8 51.5

Nonprofit Income 32.1 45.8 38.5 45.2 38.9 44.0

Differences in accounting treatment between NIPA 

and tax regulations, net 65.9 62.0 73.8 113.1 150.8 248.3

IRA-Keogh excluding capital gains 65.9 62.0 73.8 113.1 150.8 248.3

Other personal income exempt or excluded from 

adjusted gross income 96.7 167.1 235.9 325.7 347.7 448.8

Tax-exempt interest 46.5 49.0 55.6 57.7 73.6 71.1

S-corporation dividends in personal income 50.2 118.1 180.3 268.0 274.2 377.7

Equals: BEA-derived Taxable Interest Income and 

Dividend Income 272.4 346.3 404.3 395.5 326.8 339.9

IRS Taxable Interest Income and Dividend Income 210.9 292.2 317.7 328.9 331.5 372.2

Difference as a Percent of BEA-derived Taxable 

Interest Income and Dividend Income 22.6 15.6 21.4 16.8 -1.4 -9.5

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. NIPA personal income receipts on assets is the sum of NIPA personal interest income and NIPA personal dividend income.

b. The imputed income in personal income consists of depositor services furnished to persons without payment and premium supplements for property and 

casualty insurance received by persons (net of premium supplements to owner-occupied housing).
77

Table 6A. How Much of NIPA Personal Income Receipts on Assets are Subject to Tax?

1993 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Personal Income Receipts on Assets 988.6 1258.4 1441.4 1666.4 1818.0 2088.6

Less: Methodological Adjustments 158.2 247.0 330.7 451.0 461.8 581.4

Imputed income in personal income 108.0 128.9 150.4 183.0 187.6 203.7

S-corporation dividends in personal income 50.2 118.1 180.3 268.0 274.2 377.7

Equals: Non-S-Corporation Dividends and 

Cash Interest Income 830.4 1011.4 1110.7 1215.4 1356.2 1507.2

Less: Untaxed or Deferred Components of 

NIPA Personal Income Receipts on Assets 558.0 665.1 706.4 819.9 1029.5 1167.3

Investment income of life insurance carriers and 

pension plans 390.0 476.9 504.5 565.9 727.4 752.4

Investment income received by nonprofit 

institutions or retained by fiduciaries 55.7 77.2 72.5 83.2 77.7 95.5

Fiduciary Income 23.6 31.4 34.0 38.0 38.8 51.5

Nonprofit Income 32.1 45.8 38.5 45.2 38.9 44.0

IRA-Keogh excluding capital gains 65.9 62.0 73.8 113.1 150.8 248.3

Tax-exempt interest 46.5 49.0 55.6 57.7 73.6 71.1

Equals: BEA-derived Taxable Interest 

Income and Dividend Income 272.4 346.3 404.3 395.5 326.8 339.9

IRS Taxable Interest Income and Dividend 

Income 210.9 292.2 317.7 328.9 331.5 372.2
78

Table 6A. How Much of NIPA Personal Income Receipts on Assets are Subject to Tax?, Cont’d.

1993 1997 2001 2005 2009 2012

(As a Percent of Non-S-Corporation 

Dividends and Cash Interest Income)

Untaxed or Deferred Components of NIPA 

Personal Income Receipts on Assets 67.2 65.8 63.6 67.5 75.9 77.4

Investment income of life insurance carriers and 

pension plans 47.0 47.2 45.4 46.6 53.6 49.9

Investment income received by nonprofit 

institutions or retained by fiduciaries

Fiduciary Income 2.8 3.1 3.1 3.1 2.9 3.4

Nonprofit Income 3.9 4.5 3.5 3.7 2.9 2.9

IRA-Keogh excluding capital gains 7.9 6.1 6.6 9.3 11.1 16.5

Tax-exempt interest 5.6 4.8 5.0 4.7 5.4 4.7

BEA-derived Taxable Interest Income and 

Dividend Income 32.8 34.2 36.4 32.5 24.1 22.6

IRS Taxable Interest Income and Dividend 

Income 25.4 28.9 28.6 27.1 24.4 24.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 6.
79

Table 7. Reconciliation of NIPA Other Personal Income Not Included in IRS AGI, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Other Personal Income 723.6 859.3 1054.2 1346.2 1823.8 2032.1

Less: Portion of Personal Income not 

included in AGI

Nontaxable personal current transfer receipts 723.6 859.3 1054.2 1346.2 1823.8 2032.1

Government 709.5 839.9 1007.4 1320.5 1785.1 1989.0

Business 14.1 19.4 46.8 25.7 38.7 43.1

Equals: BEA-derived Other Personal Income 0.0 0.0 0.0 0.0 0.0 0.0

IRS Other Personal Income 0.0 0.0 0.0 0.0 0.0 0.0

Difference as a Percent of BEA-derived Other 

Personal Income

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.
80

Table 8A. Reconciliation of NIPA Unemployment Compensation to IRS Unemployment Compensation, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Unemployment Compensation 34.8 20.1 31.9 31.8 131.2 83.6

Equals: BEA-derived Unemployment 

Compensation 34.8 20.1 31.9 31.8 131.2 83.6

IRS Unemployment Compensation 27.6 17.2 26.9 27.9 83.5 71.2

Difference as a Percent of BEA-derived 

Unemployment Compensation 20.7 14.3 15.7 12.4 36.3 14.8

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

Table 8B. Reconciliation of NIPA Taxable Social Security Benefits to IRS Taxable Social Security Benefits, Billions of U.S. 

Dollars

1993 1997 2001 2005 2009 2012

NIPA Taxable Social Security Benefitsa

24.6 61.6 93.6 124.8 174.6 223.6

Equals: BEA-derived Taxable Social Security 

Benefits 24.6 61.6 93.6 124.8 174.6 223.6

IRS Taxable Social Security Benefits 24.6 61.6 93.6 124.8 174.6 223.6

Difference as a Percent of BEA-derived 

Taxable Social Security Benefits 0.0 0.0 0.0 0.0 0.0 0.0

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. Footnote 1 to Table 2 in Ledbetter (2004) indicates that NIPA taxable Social Security benefits include a Social Security equivalent benefit portion of Tier 1 

railroad retirement benefits. We treat all NIPA railroad retirement benefits as taxable pensions.
81

Table 9A. Reconciliation of Other Income Included in AGI but Not NIPA Personal Income, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Personal Incomea

7.8 8.2 8.4 9.2 10.6 11.4

Plus: Portion of AGI not included in personal 

income

Net gains from sale of assets 140.3 354.6 324.6 671.7 213.5 613.5

Taxable pensions 194.0 259.7 338.7 420.1 523.3 612.5

S-corporation income 51.1 102.6 130.6 250.7 205.4 321.2

Other types of income 7.5 39.0 90.4 98.5 90.0 127.8

Equals: BEA-derived AGI 400.8 764.1 892.8 1450.2 1042.9 1686.4

IRS AGI 393.0 755.9 884.4 1441.1 1032.3 1675.0

Difference as a Percent of BEA-derived AGI 1.9 1.1 0.9 0.6 1.0 0.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. Ledbetter (2004) suggests that the (Tier 2) railroad retirement benefit part of NIPA benefits from social insurance funds is taxable. As a result, NIPA railroad 

retirement benefits are subtracted from NIPA government transfer payments to persons. They are reintroduced in the first row of Table 9A so that Table 1 

accounts for all components of NIPA personal income. See Mark Ledbetter (2004), “Comparison of BEA Estimates of Personal Income and IRS Estimates 

of Adjusted Gross Income,” Survey of Current Business, April, pp. 8-22, available at http://www.bea.gov/scb/pdf/2004/04April/0404PI&AG.pdf.
82

Table 9B. Reconciliation of Total Contributions for Government Social Insurance, Billions of U.S. Dollars

1993 1997 2001 2005 2009 2012

NIPA Personal Incomea

-477.4 -587.2 -733.2 -873.3 -964.4 -951.2

Plus: Portion of AGI not included in personal 

income

Payroll tax adjustment (total contributions for 

government social insurance) 477.4 587.2 733.2 873.3 964.4 951.2

Equals: BEA-derived AGI 0.0 0.0 0.0 0.0 0.0 0.0

IRS AGI 0.0 0.0 0.0 0.0 0.0 0.0

Difference as a Percent of BEA-derived AGI

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. The first row of Table 9B gives total NIPA contributions for social insurance. NIPA personal income is calculated by summing all types of personal income 

(i.e., compensation of employees, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with a capital 

consumption adjustment, personal interest income, personal dividend income, and personal current transfer receipts) and subtracting from this total 

(employer and employee) contributions for government social insurance
83

Table 10. Taxed Components, Untaxed Components, Deferred Components, and Methodological Adjustments, Billions of U.S. 

Dollars

1993 1997 2001 2005 2009 2012

Taxed Components

IRS salaries and wagesa2892.1 3613.9 4565.2 5155.4 5707.1 6301.4

Taxable unemployment compensation 27.6 17.2 26.9 27.9 83.5 71.2

Taxable Social Security benefits 24.6 61.6 93.6 124.8 174.6 223.6

IRS net Income (less loss) of nonfarm 

proprietorships and partnerships 197.4 252.4 311.2 421.3 384.6 518.0

IRS net income (less loss) of farms -3.7 -6.8 -11.0 -12.2 -14.1 -5.5

IRS total rental and royalty net income (less 

loss) 13.4 22.4 32.9 28.2 22.5 53.1

IRS taxable interest income 131.1 171.7 198.2 162.4 168.0 111.8

IRS dividend income 79.7 120.5 119.5 166.5 163.5 260.4

Railroad retirement benefits 7.8 8.2 8.4 9.2 10.6 11.4

Plus: Untaxed Components

Employer contributions for social insurance 239.7 289.6 358.0 428.1 458.1 513.9

Employee contributions to employer-sponsored 

health insurance 86.0 91.3 131.8 170.2 219.8 238.5

Exempt military pay 13.4 12.6 13.7 23.1 34.3 35.2

Employer contributions for insurance funds 293.2 303.1 425.2 583.3 633.6 682.5

Nontaxable personal current transfer receipts

Government 709.5 839.9 1007.4 1320.5 1785.1 1989.0

Business 14.1 19.4 46.8 25.7 38.7 43.1

Investment income of life insurance carriers 

and pension plans 391.2 478.3 504.9 565.8 727.3 752.2

Investment income received by nonprofit 

institutions or retained by fiduciaries 62.3 87.0 83.1 95.0 93.9 118.2

Tax-exempt interest 46.5 49.0 55.6 57.7 73.6 71.1

IRA-Keogh excluding capital gains 65.9 62.0 73.8 113.1 150.8 248.3
84

Table 10. Taxed Components, Untaxed Components, Deferred Components, and Methodological Adjustments, Billions of 

U.S. Dollars, Cont’d.

1993 1997 2001 2005 2009 2012

Plus: Deferred Components

TSP (employee portion) 3.5 4.8 6.7 14.4 16.7 18.1

401k/403b/408k (employee portion) 46.1 76.9 115.2 139.9 172.2 196.7

Employer contributions for pension funds 208.5 245.2 309.0 383.5 444.1 478.2

Plus: Methodological Adjustments

Imputed income in personal income 158.6 222.8 294.8 350.3 419.4 577.2

S-corporation dividends in personal income 50.2 118.1 180.3 268.0 274.2 377.7

Other differences in accounting treatment 

between NIPA and tax regulations, net -10.1 -32.3 32.3 -163.3 58.5 -143.0

Non-schedule E partnership income 12.2 58.9 90.5 215.1 47.3 268.1

Plus: NIPA Accounting Adjustment -290.3 -306.8 -347.0 -393.9 -520.5 -417.3

Equals: NIPA Personal Income Less Gap 5470.6 6880.8 8727.1 10279.9 11827.3 13592.9

Plus: Gapb

176.3 194.2 260.1 329.5 260.4 295.1

NIPA Personal Income 5646.9 7075.0 8987.2 10609.4 12087.7 13888.0

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. IRS salaries and wages on IRS Form 1040 include the foreign-earned income of U.S. citizens living abroad for more than one year.

b. The “gap” is calculated by summing the differences between BEA-derived AGI and IRS AGI for salaries and wages (see Table 2), taxable unemployment 

compensation (see Table 8A), farm and nonfarm proprietors’ income (see Table 3 and Table 4), rental income (see Table 5), and personal income receipts on 

assets (see Table 6).
85

Figure 2. Taxed Components, Untaxed Components, Deferred Components, and 

Methodological Adjustments, Percent of NIPA Personal Income

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts.

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Taxed Untaxed Deferred Methdological Adjustments Gap NIPA Accounting Adjustment
86

Figure 3A. Taxed Components of NIPA Personal Income, Percent of Total Taxed 

Components

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts; IRS = Internal Revenue Service.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Railroad retirement benefits

IRS Dividend Income

IRS Taxable Interest Income

IRS Total Rental and Royalty Net Income (Less Loss)

IRS Net Income (Less Loss) of Proprietorships and Partnerships

Taxable Social Security Benefits

Taxable Unemployment Compensation

IRS Salaries and Wages
87

Figure 3B. Taxed Components Excluding IRS Salaries and Wages, Percent of Total Taxed 

Components Excluding IRS Salaries and Wages

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: IRS = Internal Revenue Service.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Railroad retirement benefits

IRS Dividend Income

IRS Taxable Interest Income

IRS Total Rental and Royalty Net Income (Less Loss)

IRS Net Income (Less Loss) of Proprietorships and

Partnerships

Taxable Social Security Benefits
88

Figure 4. Untaxed Components of NIPA Personal Income, Percent of Total Untaxed 

Components

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

IRA-Keogh excluding capital gains

Tax-exempt interest

Investment income received by nonprofit institutions or retained by fiduciaries

Investment income of life insurance carriers and pension plans

Nontaxable personal current transfer receipts, business

Nontaxable personal current transfer receipts, government

Employer contributions for insurance funds

Exempt military pay

Employee contributions to employer-sponsored health insurance

Employer contributions for government social insurance
89

Figure 5. Deferred Components of NIPA Personal Income, Percent of Total Deferred 

Components

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: TSP = Thrift Savings Plan; IRA = Individual Retirement Account.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

TSP (employee portion) 401k/403b/408k (employee portion) Employer contributions for pension plans
90

Table 11. Reconciliation of NIPA Compensation of Employees and Medicare Hospital Insurance (HI) Taxable Wage and 

Salary Earnings, Billions of U.S. Dollars

1994d1997 2001 2005 2009 2012

NIPA Compensation of Employees 4010.1 4714.7 6046.5 7086.9 7787.0 8606.5

Less: Portion of Personal Income not 

included in HI Taxable Wage and Salary 

Earnings

Employer contributions for employee 

pension and insurance funds 510.3 537.5 721.1 953.5 1066.5 1148.0

Federal pension plans (civilian and 

military) 31.8 30.2 34.4 43.9 56.3 67.8

State and local employee retirement 73.6 88.5 117.9 158.2 184.6 200.2

Private pension plans 109.2 126.5 156.7 181.4 203.2 210.2

Private group health insurance 246.0 248.7 359.0 487.8 552.7 597.2

Publicly administered government 

employee insurance fundsa 0.0 0.0 0.0 10.8 10.5 8.3

Private group life insurance 0.0 0.0 0.0 0.0 0.0 0.0

Private workers' compensation 47.0 41.4 52.2 70.9 57.9 61.6

Private supplemental unemployment 

insurance 2.7 2.2 0.9 0.5 1.0 0.5

Imputed income in personal incomeb8.3 9.1 10.1 13.1 16.9 18.1

Other personal income exempt or excluded 

from HI taxable wage and salary earnings 12.8 12.6 13.7 23.1 34.3 35.2

Exempt military pay 12.8 12.6 13.7 23.1 34.3 35.2

TSP (employee portion) 0.0 0.0 0.0 0.0 0.0 0.0

401k/403b/408k (employee portion) 0.0 0.0 0.0 0.0 0.0 0.0

Employee contributions to employersponsored health insurance 90.3 91.3 131.8 170.2 219.8 238.5
91

Table 11. Reconciliation of NIPA Compensation of Employees and Medicare Hospital Insurance (HI) Taxable Wage and 

Salary Earnings, Billions of U.S. Dollars, Cont’d.

1994d1997 2001 2005 2009 2012

Plus: Portion of HI Taxable Wage and 

Salary Earnings not included in Personal 

Income

Payroll tax adjustment (employer 

contributions for government social 

insurance)

-254.2 -289.4 -357.8 -428.0 -458.0 -513.7

OASDI -161.9 -191.5 -243.8 -276.8 -307.6 -332.5

Railroad retirement and pension benefit 

guaranty -3.6 -3.7 -3.7 -3.8 -5.1 -5.9

Federal health insurance -44.7 -54.1 -69.1 -78.9 -86.3 -95.7

State, federal, and railroad 

unemployment insurance -29.3 -28.1 -27.6 -43.8 -38.9 -59.2

Federal and state workers' compensation -13.3 -11.1 -12.3 -21.6 -15.2 -14.8

Otherc-1.4 -0.9 -1.3 -3.1 -4.9 -5.6

Other types of income 16.7 24.5 21.7 34.4 45.4 53.4

Equals: BEA-derived HI Taxable Wage 

and Salary Earnings 3150.8 3799.2 4833.7 5533.4 6036.9 6706.4

HI Taxable Wage and Salary Earnings 3088.4 3739.8 4777.8 5456.6 5969.8 6615.3

Difference as a Percent of BEA-derived 

HI Taxable Wage and Salary Earnings 2.0 1.6 1.2 1.4 1.1 1.4

Addenda:

OASDI Taxable Wage and Salary 

Earningse 2624.5 3104.3 3950.1 4490.5 4985.7 5388.9

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

Notes: TSP = Thrift Savings Plan; OASDI = Old-age, Survivors, and Disability Insurance.
92

a. Publicly administered government employee insurance funds include the Medicare-eligible Retiree Health Care Fund. See notes to NIPA Table 6.11D at 

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1.

b. Imputed income in personal income includes food furnished to employees (military and civilian), standard clothing issued to military personnel, and 

employees’ lodging (see Table 2B). Table 11 assumes that all three types of imputed income are exempt from Social Security and Medicare taxes. However, 

meals and lodging are only exempt if they are provided for the employer’s convenience, on the employer’s premises, and as condition of employment. They 

are subject to Social Security and Medicare taxes if they are considered payments in kind. See Internal Revenue Service (2014a), Publication 15 (Circular 

E), Employer’s Tax Guide, available at http://www.irs.gov/publications/p15.

c. “Other” includes veterans life insurance, temporary disability insurance, and military medical insurance.

d. Since 1994, the FICA tax base as it pertains to the Medicare HI program has not been limited to maximum taxable earnings. For this reason, we reconcile 

NIPA compensation of employees to Medicare HI taxable wage and salary earnings from 1994. For a reconciliation prior to 1994, BEA-derived HI taxable 

wage and salary earnings would need to be scaled to reflect the existence of a maximum taxable income level.

e. Data on total OASDI taxable wage and salary earnings are taken from Table 4.B11 of the Social Security Administration’s 2014 Annual Statistical 

Supplement. See U.S. Social Security Administration (2015), Annual Statistical Supplement to the Social Security Bulletin, 2014, available at 

http://www.ssa.gov/policy/docs/statcomps/supplement/2014/index.html.
93

Table 12. How Much of NIPA Compensation of Employees is Subject to Federal Insurance Contributions Act (FICA) Taxes 

for Medicare Hospital Insurance (HI)?

1994 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Compensation of Employees 4010.1 4714.7 6046.5 7086.9 7787.0 8606.5

Less: Imputed Income in Personal Income 8.3 9.1 10.1 13.1 16.9 18.1

Equals: NIPA Compensation of Employees 

less Imputed Income 4001.8 4705.6 6036.4 7073.8 7770.1 8588.4

Less: Employer Contributions for Insurance 

Funds and Government Social Insurance 549.9 581.7 769.9 998.0 1080.4 1183.5

Employer contributions for insurance funds 295.7 292.3 412.1 570.0 622.4 669.8

Payroll tax adjustment (employer contributions 

for government social insurance)

254.2 289.4 357.8 428.0 458.0 513.7

Less: Other Components of Personal Income

Excluded or Deferred from Tax 317.7 349.2 454.5 576.8 698.2 751.9

Other personal income exempt or excluded from 

adjusted gross income 12.8 12.6 13.7 23.1 34.3 35.2

Employee contributions to employer-sponsored 

health insurance 90.3 91.3 131.8 170.2 219.8 238.5

TSP (employee portion) 0.0 0.0 0.0 0.0 0.0 0.0

401k/403b/408k (employee portion) 0.0 0.0 0.0 0.0 0.0 0.0

Employer contributions for employee pension 

funds 214.6 245.2 309.0 383.5 444.1 478.2

Plus: Foreign-Earned Income of U.S. Citizens 

Living Abroad for More Than 1 Year 16.7 24.5 21.7 34.4 45.4 53.4
94

Table 12. . How Much of NIPA Compensation of Employees is Subject to Federal Insurance Contributions Act (FICA) 

Taxes for Medicare Hospital Insurance (HI)?, Cont’d.

1994 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

Equals: BEA-derived HI Taxable Wage and 

Salary Earnings 3150.8 3799.2 4833.7 5533.4 6036.9 6706.4

HI Taxable Wage and Salary Earnings 3088.4 3739.8 4777.8 5456.6 5969.8 6615.3

Addenda:

OASDI Taxable Wage and Salary Earnings 2624.5 3104.3 3950.1 4490.5 4985.7 5388.9

(As a Percent of NIPA Compensation of 

Employees less Imputed Income)

Employer Contributions for Insurance Funds and 

Government Social Insurance 13.7 12.4 12.8 14.1 13.9 13.8

Other Components of Personal Income Excluded 

or Deferred from Tax 7.9 7.4 7.5 8.2 9.0 8.8

BEA-derived HI Taxable Wage and Salary 

Earnings 78.7 80.7 80.1 78.2 77.7 78.1

HI Taxable Wage and Salary Earnings 77.2 79.5 79.1 77.1 76.8 77.0

OASDI Taxable Wage and Salary Earnings 65.6 66.0 65.4 63.5 64.2 62.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 11. 
95

Table 13. Reconciliation of NIPA Nonfarm Proprietors’ Income and Medicare Hospital Insurance (HI) Taxable SelfEmployed Earnings (Nonfarm), Billions of U.S. Dollars

1994 1997 2001 2005 2009 2012

NIPA Nonfarm Proprietors’ Income 424.8 555.5 804.7 932.6 937.5 1187.9

Less: Portion of Personal Income not 

included in HI Taxable Self-Employed 

Earnings (Nonfarm)

Investment income received by nonprofit 

institutions or retained by fiduciaries 4.2 4.5 3.4 4.6 7.1 8.7

Fiduciary Income 1.1 1.2 1.4 1.5 1.5 1.8

Nonprofit Income 3.1 3.3 2.0 3.1 5.6 6.9

Differences in accounting treatment between 

NIPA and tax regulations, net -21.6 -40.1 14.0 -187.6 49.6 -148.0

Inventory valuation adjustment -0.7 1.0 1.0 -4.6 -4.6 -10.0

Nonfarm (or farm) proprietors’ income -35.4 -70.3 -61.0 -249.3 -86.1 -297.1

Capital consumption adjustment 14.5 29.2 74.0 66.3 140.3 159.1

Adjustment for reduction in income subject to 

self-employment tax 20.0 23.1 29.1 38.0 40.6 45.8

Adjustment for definitional differences in IRS 

measure of partnership income -8.7 33.5 52.1 183.9 -35.9 239.1

Adjustments for misreporting on income tax 

returns 211.2 280.4 386.2 479.4 443.9 533.9

Plus: Portion of HI Taxable Self-Employed 

Earnings (Nonfarm) not included in Personal 

Income

Other types of incomea0.6 0.8 1.2 1.9 2.7 3.4

Church employee income 1.4 1.5 0.6 0.8 0.7 0.9
96

Table 13. Reconciliation of NIPA Nonfarm Proprietors’ Income and Medicare Hospital Insurance (HI) Taxable SelfEmployed Earnings (Nonfarm), Billions of U.S. Dollars, Cont’d.

1994 1997 2001 2005 2009 2012

Equals: BEA-derived HI Taxable SelfEmployed Earnings (Nonfarm) 221.8 256.5 321.8 417.0 435.6 512.7

HI Taxable Self-Employed Earnings 

(Nonfarm) 224.8 263.1 325.4 429.5 437.8 508.9

Difference as a Percent of BEA-derived HI 

Taxable Self-Employed Earnings (Nonfarm) -1.4 -2.6 -1.1 -3.0 -0.5 0.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1.

a. We assume that 92.35 percent of foreign-earned self-employment income (business and professional income (less losses) and partnership income (less 

losses)) reported on IRS Form 2555 is subject to U.S. self-employment taxes.
97

Table 14. How Much of NIPA Nonfarm Proprietors’ Income is Subject to Self-Employment Contributions Act (SECA) Taxes

for Medicare Hospital Insurance (HI)?

1994 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Nonfarm Proprietors’ Income 424.8 555.5 804.7 932.6 937.5 1187.9

Less: Methodological Adjustments -30.3 -6.6 66.0 -3.6 13.7 91.1

Differences in Accounting Treatment between 

NIPA and Tax Regulations, Net -21.6 -40.1 14.0 -187.6 49.6 -148.0

Adjustment for definitional differences in IRS 

measure of partnership income -8.7 33.5 52.1 183.9 -35.9 239.1

Equals: NIPA Nonfarm Proprietors’ Income 

less Methodological Adjustments 455.1 562.1 738.7 936.2 923.8 1096.8

Less: Components of Personal Income

Excluded from Tax 24.2 27.6 32.5 42.6 47.7 54.5

Investment income received by nonprofit 

institutions or retained by fiduciaries 4.2 4.5 3.4 4.6 7.1 8.7

Adjustment for reduction in income subject to 

self-employment tax 20.0 23.1 29.1 38.0 40.6 45.8

Less: Adjustments for Misreporting on 

Income Tax Returns 211.2 280.4 386.2 479.4 443.9 533.9

Plus: Portion of HI Taxable Self-Employed 

Earnings (Nonfarm) not included in Personal 

Income

2.0 2.3 1.8 2.7 3.4 4.3

Equals: BEA-derived HI Taxable SelfEmployed Earnings (Nonfarm) 221.8 256.5 321.8 417.0 435.6 512.7

HI Taxable Self-Employed Earnings 

(Nonfarm) 224.8 263.1 325.4 429.5 437.8 508.9
98

Table 14. How Much of NIPA Nonfarm Proprietors’ Income is Subject to Self-Employment Contributions Act (SECA)

Taxes for Medicare Hospital Insurance (HI)?, Cont’d.

1994 1997 2001 2005 2009 2012

(As a Percent of NIPA Nonfarm Proprietors’ 

Income less Methodological Adjustments)

Components of Personal Income Excluded from 

Tax 5.3 4.9 4.4 4.6 5.2 5.0

Adjustments for Misreporting on Income Tax 

Returns 46.4 49.9 52.3 51.2 48.1 48.7

BEA-derived HI Taxable Self-Employed 

Earnings (Nonfarm) 48.7 45.6 43.6 44.5 47.1 46.7

HI Taxable Self-Employed Earnings (Nonfarm) 49.4 46.8 44.0 45.9 47.4 46.4

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 13. 
99

Table 15. How Much of NIPA Personal Income (less Methodological Adjustments) is Subject to Payroll Taxes

1994 1997 2001 2005 2009 2012

(Billions of U.S. Dollars)

NIPA Personal Income less Methodological 

Adjustments 5669.9 6707.6 8389.2 9939.3 11288.2 12807.8

BEA-derived HI Taxable Wage and Salary 

Earnings 3150.8 3799.2 4833.7 5533.4 6036.9 6706.4

BEA-derived HI Taxable Self-Employed 

Earnings (Nonfarm) 221.8 256.5 321.8 417.0 435.6 512.7

(As a Percent of NIPA Personal Income less 

Methodological Adjustments)

BEA-derived HI Taxable Wage and Salary 

Earnings 55.6 56.6 57.6 55.7 53.5 52.4

BEA-derived HI Taxable Self-Employed 

Earnings (Nonfarm) 3.9 3.8 3.8 4.2 3.9 4.0

Note:

(As a Percent of NIPA Personal Income less 

Methodological Adjustments)

HI Taxable Wage and Salary Earnings 54.5 55.8 57.0 54.9 52.9 51.7

HI Taxable Self-Employed Earnings (Nonfarm) 4.0 3.9 3.9 4.3 3.9 4.0

Total 58.4 59.7 60.8 59.2 56.8 55.6

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 13. 
100

Appendix A: Extended Reconciliation of NIPA Compensation of Employees and NIPA 

Nonfarm Proprietors’ Income to IRS Equivalents, 1960-2012

For 2012, NIPA compensation of employees accounts for roughly 62.0 percent of NIPA personal 

income. It is by far the largest component of personal income. The next largest components are 

government social benefits to persons, comprising 16.6 percent, and proprietors’ income, 

comprising 9.1 percent. In this appendix, we reconcile NIPA compensation of employees (see 

Table A1) and NIPA nonfarm proprietors’ income (see Table A3) with their IRS AGI 

equivalents back to 1960. We then consider over a 53-year period changes in the taxed

components, untaxed components, deferred components, and methodological adjustments (see 

Table A2 and Table A4). We reconcile the other components of NIPA personal income with 

their IRS AGI equivalents back to 1960. However, the reconciliations are most complete for 

NIPA compensation of employees and NIPA nonfarm proprietors’ income, which together 

account for approximately 70.5 percent of NIPA personal income in 2012.

115

Extending the reconciliations of these two components of NIPA personal income back to 1960 

(from 1993 in Table 2 and Table 3) does not reduce the extent to which we can account for 

differences with IRS salaries and wages and IRS income (less loss) of nonfarm proprietorships 

and partnerships. Looking at NIPA compensation of employees between 1960 and 1992, the 

difference between our measure of BEA-derived salaries and wages and IRS salaries and wages 

is largest in 1960 at 5 percent of BEA-derived salaries and wages. It is smallest in 1982 at 0.2 

percent of BEA-derived salaries and wages. Looking at NIPA nonfarm proprietors’ income 

between 1960 and 1992, the differences between our measure of BEA-derived net income (less 

loss) of nonfarm proprietorships and partnerships and the IRS income (less loss) of nonfarm 

proprietorships and partnerships remains at approximately 1 percent or less (in absolute value) of 

BEA-derived net income (less loss) of nonfarm proprietorships and partnerships.

We do not have all components of the reconciliations of these two types of NIPA personal 

income with their IRS AGI equivalents back to 1960. For example, in Table A1, values for 

employee contributions to private defined contribution (401k/403b/408k) plans are from 1982.116

Values for 1984 to 2012 are taken from tax expenditure data and U.S. Department of Labor Form 

5500 Annual Reports. Values for 1982 and 1983 are obtained by backcasting employee 

contributions to private defined contribution plans using NIPA wages and salaries. We do not 

backcast to 1979, the year following the introduction of Subsection (k) of Section 401 into the

Internal Revenue Code, because the IRS only proposed in 1981 regulations clarifying that 401(k) 

contributions could be made from employees’ wages and salaries (and not just from profitsharing bonuses).

In addition, in Table A1, values for exempt military pay are from only 1985 while values for 

other types of income that are a part of AGI but not personal income include from only 1991 the 

 

115 For these extended reconciliations, we rely upon NIPA data already cited in the paper as well as archived SOI 

Individual Income Tax Reports. Archived SOI Individual Income Tax Reports are available at 

http://www.irs.gov/uac/SOI-Tax-Stats-Archive---1934-to-1999-Tax-Information-from-Individuals.

116 In Table A1, values for contributions to the federal government’s TSP are from 1987. TSP was established by 

Congress in the Federal Employees’ Retirement System Act of 1986.
101

foreign-earned salaries and wages, allowances, and noncash incomes (less excludable meals and 

lodging) of U.S. citizens living abroad for more than one year. SOI data on total (from IRS Form 

2555 and IRS Form 2555EZ) foreign-earned income are available from 1996; SOI data on 

foreign-earned income on IRS Form 2555 are available from 1991. This limited availability of 

data for IRS Form 2555 also means that in Table A3 values for the other types of income in AGI 

but not personal income include from only 1991 the foreign-earned self-employment income and 

partnership income reported on IRS Form 2555.

Taxed Components, Untaxed Components, Deferred Components, and Methodological 

Adjustments

For NIPA compensation of employees, the taxed component consists entirely of salaries and 

wages on IRS Form 1040 (of which foreign-earned income is a part). The untaxed components 

include employer contributions for government social insurance, employee contributions to 

employer-sponsored health insurance, exempt military pay, and employer contributions for 

insurance funds. The deferred components include employee nontaxable contributions to the 

federal government’s TSP, employee nontaxable contributions to private defined contribution 

plans, and employer contributions for pension plans. The methodological adjustments consist 

entirely of imputed income in personal income.

Over the 53-year period considered, the untaxed components and the deferred components have 

increased and the taxed components decreased as a percent of NIPA compensation of employees 

(see Figure A1 and Figure A2). For example, the taxed components are 85.3 percent of NIPA 

compensation of employees in 1960 but 73.3 percent in 2010. Concomitantly, the untaxed 

components are 5.2 percent of NIPA compensation of employees in 1960 but 17.2 percent in 

2010 while the deferred components are 4.5 percent of NIPA compensation of employees in 

1960 and 8.4 percent in 2010.

For NIPA nonfarm proprietors’ income, we do not see similar trends in the taxed components, 

untaxed components, and methodological adjustments as a percent of NIPA nonfarm proprietors’ 

income (see Figure A3).117 The taxed components consist of IRS net income (less loss) of 

proprietorships (nonfarm) and partnerships (of which foreign-earned income is a part). The 

untaxed components include investment income received by nonprofit institutions or retained by 

fiduciaries. The methodological adjustments comprise Non-schedule E partnership income and 

other net differences in accounting treatment between NIPA and tax regulations.

118 In Figure A4, 

the taxed components fluctuate between 68.2 percent of NIPA nonfarm proprietors’ income in 

1960 and 43.2 percent in 2010. The untaxed components generally decline from 1.3 percent of 

NIPA nonfarm proprietors’ income in 1960 to 0.7 percent in 2010. However, the adjustment for 

misreporting on income tax returns generally increases from 25.1 percent of NIPA nonfarm 

proprietors’ income in 1960 to 48.8 percent in 2010.

 

117 Table A4 and Figure A3 do not include deferred components,

118 These other differences in accounting treatment include an inventory valuation adjustment, a capital consumption 

adjustment, and a number of adjustments from NIPA Table 7.14 consolidated under the heading nonfarm 

proprietors’ income in Table A3. In absolute value, the largest adjustment in NIPA Table 7.14 consolidated under 

the heading nonfarm proprietors’ income corresponds to post-tabulation amendments and revisions.
102

Table A1. Reconciliation of NIPA Compensation of Employees and IRS Salaries and Wages, Billions of U.S. Dollars

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

NIPA Compensation of 

Employees 301.9 406.4 625.1 950.1 1626.2 2389.0 3342.7 4202.6 5856.6 7086.9 7961.5

Less: Portion of Personal 

Income not included in AGI

Employer contributions for 

employee pension and 

insurance funds

19.7 29.5 49.7 88.6 163.9 258.7 395.0 520.5 685.5 966.8 1114.6

Imputed income in personal 

income 1.6 1.9 2.6 3.6 6.0 6.6 7.5 8.7 9.9 13.1 16.4

Other personal income 

exempt or excluded from 

adjusted gross income

NA NA NA NA NA 39.5 47.5 75.1 129.6 177.4 228.9

Exempt military paya NA NA NA NA NA 11.9 14.0 12.9 13.2 23.1 35.6

TSP (employee portion)b0.0 0.0 0.0 0.0 0.0 0.0 1.2 4.2 6.0 14.4 17.5

401k/403b/408k (employee 

portion)b 0.0 0.0 0.0 0.0 0.0 27.6 32.4 58.0 110.4 139.9 175.8

Employee contributions to 

employer-sponsored health 

insurancea

NA NA NA NA NA NA NA 89.2 120.9 170.2 224.9

Plus: Portion of AGI not 

included in Personal Income

Payroll tax adjustment 

(employee and selfemployed contributions for 

government social 

insurance)

-9.3 -13.1 -23.8 -46.7 -88.9 -147.7 -206.5 -264.1 -345.2 -428.1 -469.4

Other types of income 0.1 0.1 0.2 0.5 6.7 1.2 2.4 26.2 33.8 42.2 60.3
103

Table A1. Reconciliation of NIPA Compensation of Employees and IRS Salaries and Wages, Billions of U.S. Dollars, Cont’d.

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Equals: BEA-derived 

Salaries and Wages 271.4 362.0 549.2 811.7 1374.1 1937.7 2688.5 3271.3 4599.3 5373.6 5967.7

IRS Salaries and Wages 257.9 347.2 531.9 795.4 1349.8 1928.2 2599.4 3201.5 4456.2 5155.4 5837.4

Difference as a Percent of 

BEA-derived Salaries and 

Wages

5.0 4.1 3.2 2.0 1.8 0.5 3.3 2.1 3.1 4.1 2.2

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NA = not available. Otherwise see notes to Table 1 and Table 2.

a. Data on the components of total military cash compensation included in exempt military pay in Table A1 and Table 2 (basic pay, housing allowances, 

subsistence allowances, and other allowances) are available from 1985. Data on employee contributions to employer-sponsored health insurance are 

available from 2004.

b. Employee contributions to the federal government’s Thrift Savings Plan (TSP) began in 1987. Table A1 includes values for employee contributions to 

private defined contribution (401k/403b/408k) plans from 1982. Values for 1984 to 2012 are taken from tax expenditure data and Table A4 of U.S. 

Department of Labor, Private Pension Plan Bulletins Abstract of Form 5500 Annual Reports, available at 

https://www.dol.gov/agencies/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan. Values for 1982 and 1983 are obtained by backcasting 

employee contributions to private defined contribution plans using NIPA wages and salaries. Subsection (k) of Section 401 of the Internal Revenue Code 

was added in 1978. However, it was not until 1981 that the IRS proposed regulations under the new Section 401(k) clarifying that 401(k) contributions could 

be made from an employee’s ordinary wages and salary, not just from a profit-sharing bonus.
104

Table A2. Taxed Components, Untaxed Components, Deferred Components, and Methodological Adjustments, NIPA 

Compensation of Employees, Billions of U.S. Dollars

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Taxed Components

IRS salaries and wages 257.9 347.2 531.9 795.4 1349.8 1928.2 2599.4 3201.5 4456.2 5155.4 5837.4

Portion of AGI not 

included in personal 

incomea

0.1 0.1 0.2 0.5 6.7 1.2 2.4 26.2 33.8 42.2 60.3

Plus: Untaxed 

Components

Employer contributions for 

government social 

insurance

9.3 13.1 23.8 46.7 88.9 147.7 206.5 264.1 345.2 428.1 469.4

Employee contributions to 

employer-sponsored health 

insurance

NA NA NA NA NA NA NA 89.2 120.9 170.2 224.9

Exempt military pay NA NA NA NA NA 11.9 14.0 12.9 13.2 23.1 35.6

Employer contributions for 

insurance funds 6.3 10.0 18.5 35.7 82.6 138.4 224.3 300.2 392.6 583.3 641.5

Plus: Deferred 

Components

TSP (employee portion) 0.0 0.0 0.0 0.0 0.0 0.0 1.2 4.2 6.0 14.4 17.5

401k/403b/408k (employee 

portion) 0.0 0.0 0.0 0.0 0.0 27.6 32.4 58.0 110.4 139.9 175.8

Employer contributions for

pension funds 13.7 19.6 31.3 53.1 81.5 120.6 171.0 220.3 293.1 383.5 473.3

Plus: Methodological 

Adjustments

Imputed income in 

personal income 1.6 1.9 2.6 3.6 6.0 6.6 7.5 8.7 9.9 13.1 16.4
105

Table A2. Taxed Components, Untaxed Components, Deferred Components, and Methodological Adjustments, NIPA 

Compensation of Employees, Billions of U.S. Dollars, Cont’d.

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Equals: NIPA 

Compensation of 

Employees Less Gap

288.8 391.8 608.1 934.5 1608.8 2381.0 3256.2 4159.0 5747.4 6910.9 7891.7

Plus: Gapa

13.4 14.7 17.1 15.8 17.6 8.3 86.8 43.6 109.4 176.0 70.0

NIPA Compensation of 

Employees 302.2 406.5 625.2 950.3 1626.4 2389.3 3343.0 4202.6 5856.8 7086.9 7961.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1, Table 2, Table 10, and Table A1.

a. In Table A2, the gap excludes the portion of AGI not included in personal income. For 1991 through 2012, the portion of AGI not included in personal 

income consists of the foreign-earned income of U.S. citizens living abroad for more than one year and the sum of supplemental unemployment insurance 

benefits, which would not be part of NIPA compensation of employees. Statistics of Income (SOI) data on total (from IRS Form 2555 and IRS Form 

2555EZ) foreign-earned income are available for 1996, 2001, 2006, and 2011; SOI data on foreign-earned income on IRS Form 2555 are available for 1991, 

1996, 2001, 2006, and 2011. Before 1991, the portion of AGI not included in personal income includes only supplemental unemployment insurance benefits, 

with the exception of 1979 and 1980. In 1979 and 1980, it also includes data on income earned abroad in AGI from Table 1.3 of archived SOI Individual 

Income Tax Reports, available at http://www.irs.gov/uac/SOI-Tax-Stats-Archive---1934-to-1999-Tax-Information-from-Individuals.
106

Figure A1. Taxed Components, Untaxed Components, Deferred Components, and 

Methodological Adjustments, Percent of NIPA Compensation of Employees

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts

0

10

20

30

40

50

60

70

80

90

100

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Taxed Deferred Untaxed Gap Methodological Adjustments
107

Figure A2. Untaxed Components, Deferred Components, and Methodological Adjustments, 

Percent of NIPA Compensation of Employees

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts

0

5

10

15

20

25

30

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Untaxed Deferred Gap Methodological Adjustments
108

Table A3. Reconciliation of NIPA Nonfarm Proprietors’ Income and IRS Net Income (Less Loss) of Business and Professions 

and Partnerships, Billions of U.S. Dollars

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

NIPA Nonfarm Proprietors’ 

Income 39.9 51.6 64.9 96.2 159.9 220.1 322.3 462.4 726.3 932.6 986.7

Less: Portion of Personal 

Income not included in AGI

Investment income received by 

nonprofit institutions or 

retained by fiduciaries

0.5 0.8 0.9 1.2 1.6 2.2 3.1 4.3 3.2 4.6 7.4

Fiduciary Income 0.1 0.3 0.4 0.4 0.5 0.6 0.9 1.1 1.3 1.5 1.6

Nonprofit Income 0.4 0.5 0.5 0.8 1.1 1.6 2.2 3.2 1.9 3.1 5.8

Differences in accounting 

treatment between NIPA and 

tax regulations, net

2.3 1.7 2.3 2.9 5.4 15.0 25.8 -24.0 -36.6 -187.6 -72.6

Inventory valuation 

adjustment 0.0 -0.2 -0.5 -1.1 -2.9 -0.2 -1.1 -1.5 -1.7 -4.6 1.4

Nonfarm (or farm) 

proprietors’ income 2.4 2.1 3.2 5.3 6.7 -16.5 6.6 -37.6 -89.5 -249.3 -225.0

Capital consumption 

adjustment -0.1 -0.2 -0.4 -1.3 1.6 31.7 20.3 15.1 54.6 66.3 151.0

Non-schedule E partnership 

income 0.0 -0.3 0.0 -1.1 2.7 8.3 -31.8 31.4 94.6 215.1 152.0

Adjustments for misreporting 

on income tax returns 10.0 14.3 20.4 43.2 86.1 125.2 153.7 234.8 367.1 479.4 481.8

Plus: Portion of AGI not 

included in Personal Income

Other types of incomea NA NA NA NA NA NA NA 0.7 1.2 2.1 3.2
109

Table A3. Reconciliation of NIPA Nonfarm Proprietors’ Income and IRS Net Income (Less Loss) of Business and 

Professions and Partnerships, Billions of U.S. Dollars, Cont’d.

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Equals: BEA-derived Net 

Income (Less Loss) of 

Nonfarm Proprietorships

and Partnerships

27.1 35.1 41.3 50.0 64.0 69.4 171.5 216.6 299.2 423.1 421.4

IRS Net Income (Less Loss) 

of Nonfarm Proprietorships

and Partnerships

27.2 35.2 41.5 50.2 64.6 69.9 172.1 216.8 298.6 421.3 426.6

Difference as a Percent of 

BEA-derived Net Income 

(Less Loss) of Nonfarm 

Proprietorships and 

Partnerships

-0.5 -0.4 -0.4 -0.4 -0.8 -0.7 -0.3 -0.1 0.2 0.4 -1.3

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1 and Table 3.

a. The portion of AGI not included in personal income (other types of income) takes account of foreign-earned self-employment income (business and 

professional income (less losses) and partnership income (less losses)) reported on IRS Form 2555. The Statistics of Income (SOI) provides data on business 

and professional income (less losses) and partnership income (less losses) on IRS Form 2555 for 1991, 1996, 2001, 2006, and 2011. Values for the 

intervening years are obtained using a linear interpolation.
110

Table A4. Taxed Components, Untaxed Components, and Methodological Adjustments, NIPA Nonfarm Proprietors’ Income,

Billions of U.S. Dollars

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Taxed Components

IRS net Income (less loss) of 

nonfarm proprietorships and 

partnerships

27.2 35.2 41.5 50.2 64.6 69.9 172.1 216.8 298.6 421.3 426.6

Portion of AGI not included in 

personal incomea 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.7 1.2 2.1 3.2

Plus: Untaxed Components

Investment income received by 

nonprofit institutions or retained by 

fiduciaries

0.5 0.8 0.9 1.2 1.6 2.2 3.1 4.3 3.2 4.6 7.4

Plus: Methodological Adjustments

Other differences in accounting 

treatment between NIPA and tax 

regulations, netb

2.3 1.7 2.3 2.9 5.4 15.0 25.8 -24.0 -36.6 -

187.6 -72.6

Non-schedule E partnership income 0.0 -0.3 0.0 -1.1 2.7 8.3 -31.8 31.4 94.6 215.1 152.0

Plus: Adjustment for Misreporting 

on Income Tax Returns 10.0 14.3 20.4 43.2 86.1 125.2 153.7 234.8 367.1 479.4 481.8

Equals: NIPA Nonfarm 

Proprietors’ Income Less Gap 40.0 51.7 65.1 96.4 160.4 220.6 322.9 463.3 726.9 932.8 995.2

Plus: Gapa

-0.1 -0.1 -0.2 -0.2 -0.5 -0.5 -0.6 -0.9 -0.6 -0.2 -8.5

NIPA Nonfarm Proprietors’ 

Income 39.9 51.6 64.9 96.2 159.9 220.1 322.3 462.4 726.3 932.6 986.7

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

See notes to Table 1, Table 3, and Table A3.
111

a. In Table A4, the gap excludes the portion of AGI not included in personal income. For 1991 through 2012, the portion of AGI not included in personal 

income consists of foreign-earned self-employment income (business and professional income (less losses) and partnership income (less losses)) reported on 

IRS Form 2555, which would not be part of NIPA nonfarm proprietors’ income.

b. Other differences in accounting treatment between NIPA and tax regulations, net includes an inventory valuation adjustment, a capital consumption 

adjustment, and a number of adjustments from NIPA Table 7.14 consolidated under the heading nonfarm proprietors’ income. See Section III of the paper 

for a detailed discussion of nonfarm proprietors’ income.
112

Figure A3. Taxed Components, Untaxed Components, and Methodological Adjustments, 

Percent of NIPA Nonfarm Proprietors’ Income

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts

-20

0

20

40

60

80

100

120

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Taxed Methodological Adjustments Untaxed Gap Misreporting Adjustment
113

Appendix B: Glossary and Detailed Table 1D

Appendix B presents a more detailed version of Table 1D in Section II of the paper (see Table 

B1). It also includes definitions of some of the reconciliation items appearing in Table 1D and 

Table B1.

Glossary

Imputed income in personal income:

In Table B1, values shown for imputed income in personal income are taken from NIPA Table 

7.12. For compensation of employees (column (2)), imputed income in personal income includes 

food furnished to employees, standard clothing issued to military personnel, and employees’

lodging. For farm proprietors’ income (column (3)), it includes farm products consumed on 

farms. For rental income (column (4)), it includes the imputed rental income of persons from 

owner-occupied housing (net of subsidies). For personal income receipts on assets (column (5)), 

it is the imputed personal interest income of persons in personal income. The imputed personal 

interest income of persons consists of depositor services furnished to persons without payment 

and premium supplements for property and casualty insurance received by persons (net of 

premium supplements to owner-occupied housing).

Non-schedule E partnership income:

The reconciliation of NIPA nonfarm proprietors’ income to the IRS net income (less loss) of 

business and professions (nonfarm proprietorships) and partnerships is based largely on NIPA 

Table 7.14. Non-schedule E partnership income is included as a reconciliation item because 

NIPA Table 7.14 reconciles NIPA nonfarm proprietors’ income to the net profit (less loss) of 

nonfarm proprietorships and partnerships, plus payments to partners. The net profit (less loss) of 

nonfarm proprietorships and partnerships, plus payments to partners, exceeds IRS net income 

(less loss) of nonfarm proprietorships (from IRS Form 1140 Schedule C) and partnerships (from

IRS Form 1140 Schedule E). An adjustment is calculated by taking the difference between the 

net profit (less loss) of nonfarm proprietorships and partnerships, plus payments to partners, in 

NIPA Table 7.14 and IRS net income (less loss) of nonfarm proprietorships and partnerships in 

Table 3.

S-corporation dividends in personal income

The adjustment for S-corporation dividends in personal income is calculated using data from 

Schedule K of IRS Form 1120S. It is the sum of (i) total property distributions, excluding cash, 

other than dividends and (ii) total dividend distributions paid from accumulated earnings and 

profits. These S-corporation distributions are included in NIPA personal dividend income but not 

IRS AGI and, thus, must be removed from NIPA personal income receipts on assets to obtain a 

BEA-derived taxable interest income and dividend income. S-corporation income which is 

included in IRS AGI is then introduced as a component of AGI not in personal income (column 

(8)).
114

Gain on Section 1231 assets

Section 1231 property is property used in trade or business. It includes livestock held for draft, 

breeding, dairy, and sport purposes. Net gains from the sale of such livestock are included in 

USDA net farm income and, hence, NIPA farm proprietors’ income but are excluded from IRS 

net income (less loss) of farms. This is because the net gains are not reported on Schedule F of 

IRS Form 1040 but instead on IRS Form 4797 (Sales of Business Property). 

Nonfarm (or farm) proprietors’ income

For nonfarm proprietors’ income, a number of adjustments from NIPA Table 7.14 are 

consolidated under the heading ‘nonfarm proprietors’ income’ (under differences in accounting 

treatment between NIPA and tax regulations, net). Those adjustments include post-tabulation 

amendments and revisions; depletion of domestic minerals; an adjustment to depreciate 

expenditures for mining exploration, shafts, and wells; bad debt expense; an adjustment to 

depreciate expenditures for intellectual property products; and a net disaster adjustment. All of 

these adjustments are described in greater detail in Section III of the paper.

For farm proprietors’ income, we add an adjustment under the heading farm proprietors’ income 

(under differences in accounting treatment between NIPA and tax regulations, net) for farm 

housing expenses excluding depreciation (from NIPA Table 7.15).

Excess farm inventories

Brown, et al. (2006) define the excess change of farm inventories as the IRS change in farm 

inventories minus the BEA change in farm inventories. NIPA Table 5.7.5B gives the BEA 

change in farm inventories. However, calculating the change in IRS farm inventories is 

complicated because Schedule F of IRS Form 1040 includes lines for farm inventories of 

livestock, produce, grains, and other products (lines 45-48) but the Individual Statistics of 

Income Complete Report File contains no corresponding variables. As an alternative, we 

calculate excess farm inventories as the sum of line 13 in NIPA Table 7.3.5 (the change in farm 

materials and supplies inventories) and line 7 in NIPA Table 7.3.5 (the change in farm finished 

goods inventories).

Excess tax depreciation

For rental income (column (4)), excess tax depreciation is the difference between relevant BEA 

and IRS measures of depreciation. For farm proprietors’ income (column (3)), it is the difference 

between IRS farm depreciation and USDA farm depreciation. See Section III of the paper for 

details on the calculation of excess tax depreciation.

Nontaxable personal current transfer receipts

Other personal income not included in AGI consists of nontaxable government transfer payments 

to persons and nontaxable business transfer payments to persons. No components of business 

transfer payments to persons are taxable. Thus, the value given for nontaxable personal current 

transfer receipts includes the full value of this type of NIPA personal income. Government 

transfer payments to persons include taxable and nontaxable components. The value given for 
115

nontaxable personal current transfer receipts excludes the taxable components. The taxable 

components include NIPA railroad retirement benefits (from NIPA Table 3.12), NIPA 

unemployment compensation (from NIPA Table 2.1), and taxable Social Security benefits (from 

SOI individual income tax return statistics).

Employer contributions for employee pension and insurance funds

Supplements to wages and salaries include employer contributions for employee pension and 

insurance funds. Employer contributions for employee pension funds (from NIPA Table 7.8 and

NIPA Table 7.22 through NIPA Table 7.25) include employer contributions to federal pension 

plans, state and local employee retirement, and private defined benefit and defined contribution 

pension plans. Employer contributions for employee insurance funds include employer 

contributions to private group health insurance, private group life insurance, private workers’ 

compensation, and private supplemental unemployment insurance. In Table B1, employer 

contributions for employee insurance funds are included among the components of personal 

income excluded from tax. Employer contributions for employee pension funds are included 

among the components of personal income deferred from tax.

Statutory adjustments

Statutory adjustments (line 23 through line 36 on IRS Form 1040) are adjustments to total 

income that are allowed as deductions in the calculation of AGI. In 2012, they include the health 

savings account deduction, moving expenses, one half of the self-employment tax, contributions 

to self-employed retirement plans, the self-employed health insurance deduction, alimony 

payments, IRA deductions, student loan interest, the tuition and fees deduction, the domestic 

production activities deduction, and other adjustments. All data on statutory adjustments are 

obtained from Table 1.4 of the Statistics of Income publication Individual Income Tax Returns 

Publication 1304 (Complete Report).

IRA-Keogh excluding capital gains

Ledbetter (2004) indicates that net differences in accounting treatment between NIPA and tax 

regulations incorporate the earnings, excluding capital gains, of IRA and Keogh plans. This is 

because the earnings of IRA and Keogh plans are included in NIPA personal income on an 

accrual basis but in IRS AGI on a cash basis. See Section III of the paper for details on the 

calculation of the earnings, excluding capital gains, of IRA and Keogh plans.

Payroll tax adjustment

Employer contributions for social insurance are a component of NIPA compensation of 

employees. NIPA personal income (from NIPA Table 2.1) is calculated by summing all types of 

personal income (i.e., compensation of employees, proprietors’ income with inventory valuation 

and capital consumption adjustments, rental income of persons with a capital consumption 

adjustment, personal interest income, personal dividend income, and personal current transfer 

receipts) and subtracting from this total (employer and employee) contributions for government

social insurance. Table 1D and Table B1 take this into account by including a payroll tax 

adjustment as a portion of AGI not included in personal income. In column (1), which is the
116

summation of columns (2) through (8), the payroll tax adjustment gives employee and selfemployed contributions for government social insurance. In column (2), it gives the negative of 

employer contributions for government social insurance. It gives the negative of employer 

contributions for government social insurance because employer contributions need to be 

subtracted from NIPA compensation of employees to arrive at a BEA-derived salaries and wages

equivalent to IRS salaries and wages. In column (7), the payroll tax adjustment gives the positive 

of total (employer and employee) contributions for government social insurance. Summing the 

payroll tax adjustments in column (2) and column (7) gives employee and self-employed 

contributions for government social insurance in column (1).

Net gains from sale of assets

Net gains from the sale of assets are the sum of net gains (less losses) from the sales of capital 

assets reported on Schedule D of IRS Form 1040, capital gains distributions reported on IRS 

Form 1040, and net gains (less losses) from sales of property other than capital assets.

S-corporation income

S-corporation income is the sum of S-corporation nonpassive income (less loss) and Scorporation passive income (less loss) from Part II of Schedule E of IRS Form 1040. Scorporation nonpassive income (less loss) is obtained by subtracting from nonpassive Scorporation income S-corporation Section 179 expense deductions and S-corporation nonpassive 

losses.

Other types of income

In column (2) of Table B1, other types of income (under portion of AGI not included in personal 

income) include both supplemental unemployment insurance benefits (from NIPA Table 6.11C 

and NIPA Table 6.11D) and the total foreign-earned income of U.S. citizens living abroad for 

more than one year minus foreign-earned self-employment income. The total foreign-earned 

income of U.S. citizens living abroad is calculated using data from the Statistics of Income (SOI) 

based on IRS Form 2555 and IRS Form 2555EZ. Foreign-earned income on IRS Form 2555 

includes wages and salaries, allowances, noncash income less excludable meals and lodging, 

self-employment income (business and professional income (less losses) and partnership income 

(less losses)), and other foreign income. Other types of income in column (3) include only the 

foreign-earned self-employment income (business and professional income (less losses) and 

partnership income (less losses)) reported on IRS Form 2555.

In column (8), other types of income are obtained by summing taxable IRA distributions, 

alimony received, state income tax refunds, gambling earnings, cancellation of debt, taxable 

health savings account distributions, and other net income (less loss) and subtracting from the 

result net operating losses and the foreign-earned income exclusion. All data on other types of 

income in column (8) are obtained from Table 1.4 of the Statistics of Income publication 

Individual Income Tax Returns Publication 1304 (Complete Report).
117

Table B1. Detailed Decomposition of 2012 BEA-Derived AGI, Billions of U.S. Dollars

Personal Income

AGI not in 

Personal 

Income Total

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGI

(1) (2) (3) (4) (5) (6) (7) (8)

NIPA Personal Income 13887.8 8606.5 1260.2 533.0 2088.6 307.2 1080.9 11.4

Less: Methodological 

Adjustments 1080.0 18.1 129.2 351.2 581.4

Imputed Income in Personal 

Income 577.2 18.1 0.2 355.2 203.7

Non-schedule E partnership 

income 268.1 268.1

S-corporation dividends in 

personal income 377.7 377.7

Differences in accounting 

treatment between NIPA and 

tax regulations, net

-143.0 -139.0 -4.0

Gain on Section 1231 assets 2.2 2.2

Inventory valuation 

adjustment -10.0 -10.0

Nonfarm (or farm) 

proprietors’ income -286.5 -286.5

Excess farm inventories -8.6 -8.6

Excess tax depreciation 20.6 10.5 10.1

Capital consumption 

adjustment 139.2 153.3 -14.1

Equals: NIPA Personal 

Income less Methodological 

Adjustments

12807.8 8588.4 1131.0 181.8 1507.2 307.2 1080.9 11.4
118

Table B1. Detailed Decomposition of 2012 BEA-Derived AGI, Billions of U.S. Dollars, Cont’d.

Personal Income

AGI not in 

Personal 

Income Total

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGI

(1) (2) (3) (4) (5) (6) (7) (8)

Less: Components of 

Personal Income Excluded 

or Deferred from Tax

5004.8 1648.9 8.7 13.7 1167.3 2166.1

Nontaxable personal current 

transfer receipts 2032.1 2032.1

Employer contributions for 

insurance funds 682.2 682.2

Private group health 

insurance 597.2 597.2

Other 85.0 85.0

Investment income of life 

insurance carriers and pension 

plans

752.2 -0.2 752.4

Investment income received by 

nonprofit institutions or 

retained by fiduciaries

118.2 8.7 13.9 95.5

Other personal income exempt 

or excluded from adjusted 

gross income

240.3 35.2 71.1 134.0

Statutory adjustments 134.0 134.0

Exempt military pay 35.2 35.2

Tax-exempt interest 71.1 71.1

Employee contributions to 

employer-sponsored health 

insurance

238.5 238.5

IRA-Keogh excluding capital 

gains 248.3 248.3

TSP (employee portion) 18.1 18.1
119

Table B1. Detailed Decomposition of 2012 BEA-Derived AGI, Billions of U.S. Dollars, Cont’d.

Personal Income

AGI not in 

Personal 

Income Total

Compensation

of 

Employees

Proprietors’ 

Income

Rental 

Income

Personal 

Income 

Receipts 

on

Assets

Taxable 

Unemployment 

Compensation 

and Social 

Security

Other 

Personal 

Income 

not in 

AGI

(1) (2) (3) (4) (5) (6) (7) (8)

401k/403b/408k (employee 

portion) 196.7 196.7

Employer contributions for 

employee pension funds 478.2 478.2

Defined benefit 328.7 328.7

Defined contribution 149.5 149.5

Less: Adjustments for 

Misreporting on Income Tax 

Returns

533.9 533.9

Equals: BEA-derived 

Current Income AGI 7269.2 6939.5 588.4 168.0 339.9 307.2 -1085.2 11.4

Plus: Portion of AGI not 

included in Personal Income 2177.8 -452.1 3.7 951.2 1675.0

Payroll tax adjustment 437.3 -513.9 951.2

Net gains from sale of assets 613.5 613.5

Taxable pensions 612.5 612.5

S-corporation income 321.2 321.2

Other types of income 193.3 61.8 3.7 127.8

Equals: BEA-derived AGI 9447.0 6487.4 592.0 168.0 339.9 307.2 -134.0 1686.4

Source: U.S. Treasury Department, Office of Tax Analysis (OTA)

Notes: NIPA = National Income and Product Accounts; BEA = Bureau of Economic Analysis; AGI = adjusted gross income; IRA = Individual Retirement 

Account; and TSP = Thrift Savings Plan.