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Federal personal income tax liabilities and payments, 1990-92.

This article presents revised estimates of Federal personal income tax liabilities and payments for 1990-91 and new estimates for 1992 (table 1).(1) The estimates incorporate the annual revision of the national income and product accounts NIPA's) released in August 1993 and newly available data from the following Internal Revenue Service (IRS) sources: Statistics of Income, Individual Income Tax Returns (SOI), Annual Reports for 1989-91, and unpublished information on individual income tax collections for liability year 1992.
Table I. - Federal Personal Income Tax Liabilities and
 Payments, 1980-92

[Billions of dollars, quarters seasonally adjusted annual rates]

 Personal income taxes

 Year and quarter Liability Payment Excess of
 basis(1) basis(2) liability
 basis over

 1989 437.0 451.7 -14.7
 1990 449.6 471.5 -21.9
 1991 447.5 462.3 -14.8
 1992 471.3 478.0 -6.7

 1989:I 424.0 440.0 -16.0
 II 432.2 456.7 -24.5
 III 439.5 450.7 -11.2
 IV 462.2 459.4 -7.2

 1990:I 437.7 465.1 -27.4
 II 448.4 473.5 -25.1
 III 454.0 475.6 -21.6
 IV 458.3 471.6 -13.3

 1991:I 439.9 461.7 -21.8
 II 449.7 460.3 -15.6
 III 449.6 461.2 -11.6
 IV 455.7 466.0 -10.3

 1992:I 457.3 467.3 10.0
 II 465.7 469.8 -4.1
 III 470.8 476.7 -6.0
 IV 491.5 498.3 -6.8
(1) This series is derived by the Bureau of Economic Analysis based on data from
following Internal Service sources: Statistics of Income, Individual Income Tax
Returns (SOI), Annual Reports for 1989-91, and unpublished information on indivi
dual income
tax collections for liability year 1992.
(2) This series appears in the table 3.4 of the full set of national income and
product accounts
tables, published most recently in the August 1993 Survey of Current Business.

This article first presents an overview of the tax liabilities and payments measures and the reasons why they differ. It then discusses the differences for 1990-92 and the sources of revision to the estimates for 1990-91.


In the NIPA's, personal income taxes are recorded on a payment basis - that is, at the time tax payments are made by or on behalf of persons.(2) For certain types of analysis, personal income taxes recorded on a liability basis - that is, at the time persons earn their income and incur their tax liability - may be more appropriate.

The payment series, which appears in table 3.4 of the NIPA tables,(3) consists of three parts: Withheld taxes; declarations and final settlements, or "nonwithheld taxes"; and refunds. Withheld income taxes are those withheld at the income source. Declarations are estimated taxes paid quarterly, largely on income not subject to withholding, and final settlements are additional taxes paid either at the time of filing tax returns or as the result of audits. Refunds, made when payments exceed liabilities, occur at the time of filing tax returns.

The liability series is derived from SOI estimates of total income tax paid by individuals; the following adjustments are made: Refundable earned income credits are subtracted; fiduciary income taxes are added because the NIPA definition of persons includes fiduciaries; and audit assessments are added because SOI estimates of total income tax are before audits. When the SOI estimates of total income tax are not available, the liability series is derived from unpublished information on individual income tax collections.

For taxes withheld from wages and salaries, differences between tax liabilities and payments arise for several reasons. First, overwithholding is built into the withholding tables used by employers, although, as discussed later, the extent of overwithholding has been reduced because of new withholding tables introduced in 1992. Second, the withholding tables are constructed under the assumption that taxpayers use the standard deduction in calculating their income tax liabilities; overwithholding results when taxpayers who itemize their deductions do not request enough exemptions for withholding purposes. Third, withholding is based on the assumption that wages remain unchanged during the year; overwithholding results when wages change from one pay period to another and are subject to different withholding rates. Fourth, withholding tables may not always be revised to coincide with changes in liabilities; tax law provisions usually are effective on January 1, but corresponding revisions in withholding tables sometimes occur later. In addition, withholding tables are usually revised to reflect changes in the standard deduction, exemptions, and tax rates; they are usually not revised to reflect changes in provisions affecting itemized deductions. Fifth, at the option of the employer, taxes withheld on bonuses, commissions, overtime pay, sick pay, and taxable fringe benefits may be based on a flat 20-percent rate instead of the regular withholding rate.

For some types of taxable incomes, differences arise because taxes withheld have no direct relationship to the corresponding liabilities. For interest, dividends, and certain other types of income, an arbitrary 20 percent is withheld if the recipient fails to furnish an accurate taxpayer identification number (this withholding was initiated in 1984 as a compliance measure). For pensions and annuities, withholding is at the option of the taxpayer.

For incomes not subject to withholding (primarily income from proprietorships, partnerships, and small business corporations, from capital gains, and from taxable social security benefits), differences arise because the proportion of the current year's liabilities that must be paid to avoid a penalty is less than 100 percent and because the last instrument of quarterly estimated taxes and any final settlements are made in the year after the liabilities were incurred. As a result, payments of nonwithheld taxes during a tax year do not always reflect that year's income. Thus, when incomes not subject to withholding are increasing, payments tend to lag liabilities.

Refunds arise from overpayment of taxes. Actual refunds are recorded in the payment series as negative payments in the calendar quarter they are made by the Treasury. Thus, refunds are unrelated to the current year's liabilities.

Differences for 1990-92

For 1990 and 1991, payments exceeded liabilities by about $22 billion and $15 billion, respectively; excess payments are normally expected because of the overwithholding inherent in the withholding tables. A limit on total itemized deductions that was introduced in 1991 may have reduced the excess payments in 1991 because it was not reflected in the withholding tables.

Excess payments were about $7 billion for 1992; this relatively small amount largely reflects a revision in the withholding tables that affected the timing of payments for 1992 tax liabilities. The withholding tables introduced in 1992 reflected a reduction in withholding in an effort to stimulate the economy. The new withholding tables, which became effective for wages paid after February 1992, did not affect 1992 liabilities, but they reduced 1992 payments, thereby reducing excess payments for 1992. This effect was partially offset by tighter requirements for estimated tax payments.

Sources of revisions for 1990-91

Table 2 shows the revisions to the annual and quarterly estimates of the liability and payment series for 1990-91. The annual estimates of liabilities are revised to reflect revised IRS data. The revised quarterly liability estimates also reflect revised quarterly NIPA estimates of personal income, which are used to allocate the annual estimates to the quarters. For payments, the revised annual and quarterly estimates were published as part of the annual NIPA revision in August 1993.


(1.) Estimates of Federal personal income tax liabilities and payments for 1959-91 were previously published in the August 1992 Survey of Current Business. (2) In the NIPA's persons consist of individuals, nonprofit institutions that primarily serve individuals, private noninsured welfare funds, and private trust funds. (3.) This table is included in the full set of tables that is published annually in the in the Survey of Current Business; it appeared most recently in the August 1993 issue.
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Author:Park, Thae S.
Publication:Survey of Current Business
Date:Nov 1, 1993
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