Because taxes and tax credits affect lower- and higher-income households differently, the tax system shapes the overall distribution of post-tax income in the United States.

One way to observe how income is redistributed is by comparing household income before and after taxes.

Taxes and credits increased the share of total income held by households in the bottom four quintiles of the income distribution. In contrast, households in the highest quintile (or top 20%) held a lower share of total income after taxes than before.

Despite taxes taking a bigger share of income from higher-income households, the gap between high- and low-income households remains.

The progressive tax system, as designed, lowers income inequality when you compare post-tax to pretax income. But while the distribution of post-tax income is more equal than pretax income, inequality in both measures rose in recent decades.

Percentile income ratios are a common way to measure income inequality. The ratio between the top of the income distribution (90th percentile) and the bottom of the income distribution (10th percentile) shows the broad spread of the income distribution.

The post-tax income ratio of the top to the bottom of the distribution increased 14%, from 8.6 in 2009 to 9.9 in 2024. This means that by 2024, after accounting for taxes and credits, households at the 90th percentile made approximately 10 times as much as those at the 10th percentile.

This same ratio between the top and bottom of the distribution also increased (11%) for pretax income, from 11.4 in 2009 to 12.6 in 2024.

Although these ratios were significantly higher in 2024 than in 2009, inequality did not rise steadily each year. As the COVID-19 pandemic began, pretax and post-tax income ratios diverged;  the post-tax income ratio fell between 2019 and 2020, while the pretax ratio rose slightly (the difference between estimates is statistically significant, though the percent change is not).

Inequality in post-tax income decreased during this period at least in part due to expansions of tax credits and stimulus payments during the pandemic. These pandemic assistance policies were captured in post-tax income but not in pretax income. 

Then, as many of these programs expired, post-tax inequality increased again; the ratio between the top and bottom of the post-tax income distribution rose about 8% from 2021 to 2022. 

The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) does not directly ask respondents whether they filed taxes, how much tax they owed, or whether they received any tax credits.

So to estimate how the tax system affects household income, the Census Bureau uses a model that applies federal and state income tax rules to each household, based on each household’s characteristics and income. We use this model to estimate each household’s federal, state, and payroll tax liability and tax credits.

The Tax Model for the CPS ASEC provides more information on the tax model, including the tax parameter workbook for tax years 2023 and 2024 and user notes about this year’s tax model.

A recent working paper offers a more in-depth look into historical post-tax income, including measures of statistical uncertainty for key estimates from 2009 to 2023.

The CPS ASEC technical documentation includes information on confidentiality protection, methodology, and sampling and nonsampling error. All comparative statements have undergone statistical testing and are statistically significant at the 90% confidence level unless otherwise noted.