Understanding what is a lease and its implications is crucial for businesses and individuals alike. The lease definition encompasses a contractual agreement where one party, the lessor, grants another party, the lessee, the right to use an asset for a specified period in exchange for periodic payments. This lease meaning is fundamental in various sectors, from real estate to equipment rentals, shaping financial strategies and operational decisions.
Wages and Salaries Make Up $9.0 Trillion of Personal Income
Wages and salaries comprise the largest overall source of total income. For most tax filers in the U.S., the largest income number on Form 1040 appears on the line where they report wages, salaries, tips, and other compensation for their work. In other words, most Americans report earning labor income, and most of their income comes from labor. In total, more than 126 million tax filers in 2021 reported $9.0 trillion in wage income—61 percent of total income. That compares to $8.4 trillion and 66 percent in 2020.
Business Income Makes Up Nearly $1.5 Trillion of Personal Income
In the U.S., pass-through entities are the dominant tax filing structure for businesses, so labeled because the income is “passed through” to individual owners’ tax returns using schedules C, E, and F, rather than taxed at the business level. Unlike corporations subject to the corporate income tax, pass-through business income is taxed as ordinary income on owners’ personal tax returns at the same progressive rate schedule as salaries and wages. The TCJA established a temporary 20 percent tax deduction for pass-through business income, notwithstanding certain limits and qualifications.
Investment Income Makes Up Nearly $2.6 Trillion of Personal Income
Overall taxable investment income, consisting of taxable interest, ordinary dividends, and capital gains income, amounted to $2.6 trillion in 2021, compared to $1.6 trillion in 2020. Taxpayers reported nearly $387 billion of taxable ordinary dividends, $103 billion of taxable interest, and $50 billion of net gains from sales of property other than capital assets, such as certain real business property or copyrights. Capital gains realizations reached a 40-year high in 2021, growing more than 80 percent from to 2020 to exceed $2 trillion.
Retirement Income Makes Up Nearly $1.7 Trillion of Personal Income
In 2021, taxpayers reported $858 billion of taxable income from pensions and annuities and $408 billion of taxable Individual Retirement Arrangement (IRA) distributions. In addition to private saving, taxpayers reported nearly $413 billion in taxable Social Security benefits in tax year 2021, for a total $1.7 trillion in taxable retirement income. That compares to about $1.5 trillion in 2020.
The Impact of the COVID-19 Pandemic and Economic Recovery
The COVID-19 pandemic had a profound impact on economic stability in the United States, and it can be seen in the 2021 individual income tax return data. Personal income increased by 17 percent from 2020 to 2021, compared to 5 percent growth from 2019 to 2020, driven largely by capital gains realizations reaching a 40-year record high. The aggregate growth, however, masks different experiences across income groups.
For instance, after increasing by 9.9 percent from 2019 to 2020, personal income growth accelerated further for taxpayers making $50,000 and above, reaching 15.8 percent from 2020 to 2021. By contrast, taxpayers making under $50,000 experienced slight negative personal income growth in 2021(-0.3 percent) after only 1.3 percent growth from 2019 to 2020.
This pattern holds for salaries and wages, the largest source of personal income. Taxpayers making $50,000 and more experienced a 9.7 percent increase in 2021, while taxpayers making under $50,000 saw a 3.7 percent decrease in salaries and wages.
