What Can IRS Data Tell Us about Income in Indiana?

Rachel Strange

Geodemographic Analyst, Indiana Business Research Center, Indiana University Kelley School of Business

While getting up and going to work each day is the predominant source of income for many Hoosiers, recently released data (for tax year 2011) from the Internal Revenue Service (IRS) shed light on some other income streams, such as interest earnings and pensions.

More than 3 million returns were filed statewide, with 40 percent of those being joint returns. Figure 1 shows the number of returns in each adjusted gross income (AGI) bracket.

Figure 1: Indiana Tax Returns by Adjusted Gross Income

figure 1

Source: IBRC, using IRS data

Wages and Investments

Figure 2 shows that the number of returns reporting salaries and wages varied from 77 percent for Hoosiers with an AGI less than $25,000 to a high of 93 percent for those with an AGI between $100,000 and $200,000.

Figure 2: Income Type Reported in Indiana by Adjusted Gross Income

figure 2

Source: IBRC, using IRS data

As AGI increased, so did the likelihood of reporting taxable interest, dividends and capital gains. For example, while only 20 percent of Hoosiers with an AGI less than $25,000 reported taxable interest and only 7 percent reported capital gains, those numbers increased to 87 percent and 64 percent, respectively, for those with an AGI of $200,000 or more.

Table 1 shows how the average amount contributed by each income type varied as AGI increased.

Table 1: Indiana’s Average Income by Type and Adjusted Gross Income Bracket

Income Type $1 - $25,000 $25,000 - $50,000 $50,000 - $75,000 75,000- $100,000 $100,000 - $200,000 $200,000 or more
Salaries and Wages $11,088 $32,732 $54,221 $75,157 $110,773 $254,302
Taxable Interest $905 $1,065 $1,130 $1,166 $1,538 $8,520
Ordinary Dividends $1,480 $2,112 $2,547 $2,772 $4,032 $22,205
Qualified Dividends $969 $1,479 $1,849 $2,110 $3,185 $17,534
Capital Gain (less loss) -$152 $840 $1,430 $2,480 $4,954 $71,251

Note: Averages are calculated based on the number reporting that type of income within each AGI bracket.
Source: IBRC, using IRS data

Retirement Income

Pensions and annuities are an important income stream for Hoosier retirees across all income brackets (see Figure 3). In all, more than 620,000 Indiana tax returns reported this type of income.

Figure 3: Sources of Retirement Income in Indiana by Adjusted Gross Income

figure 3

Source: IBRC, using IRS data

Meanwhile, almost 361,000 reported taxable Social Security benefits (whether or not Social Security benefits are taxable depends on one’s total income and marital status, so this does not capture those with untaxed benefits). About 297,000 reported individual retirement account (IRA) distributions. Only about 12,200 tax returns included self-employment retirement plan distributions.

Table 2 shows that pensions and annuities are the leading source of retirement income (excluding those untaxed Social Security benefits, which are not reported in this data set) across all income brackets up to $200,000. Those in the top income bracket have IRA distributions as the leading source of income.

Table 2: Indiana’s Average Retirement Income by Type and Adjusted Gross Income Bracket

Income Type $1 - $25,000 $25,000 - $50,000 $50,000 - $75,000 75,000- $100,000 $100,000 - $200,000 $200,000 or more
Pensions and Annuities $8,165 $15,325 $19,225 $22,578 $28,343 $41,853
Taxable Social Security Benefits $1,642 $6,203 $14,414 $18,957 $21,078 $23,729
IRA Distributions $5,133 $9,030 $12,880 $17,679 $26,765 $56,518
Self-Employment Retirement Plans $4,009 $6,686 $7,373 $9,417 $14,818 $29,682

Note: Averages are calculated based on the number reporting that type of income within each AGI bracket.
Source: IBRC, using IRS data

Learn More

While you can always visit the IRS website to download the county-level or ZIP Code data nationwide, the Missouri Census Data Center has processed these files and offers enhanced versions of the files (e.g., easy-to-understand variable names and value-added calculations) via their Uexplore tool. Visit http://mcdc.missouri.edu/data/irstaxes/Readme.shtml to learn more about accessing the enhanced files.