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STATISTICS OF INCOME FOR 1943
PART 1
COMPILED FROM INDIVIDUAL INCOME AND VICTORY TAX RETURNS, TAXABLE FIDUCIARY INCOME AND VICTORY TAX RETURNS, ESTATE TAX RETURNS, AND GIFT TAX RETURNS
UNITED STATES TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE • WASHINGTON. D.C.
UNITED STATES TREASURY DEPARTMENT
BUREAU OF INTERNAL REVENUE
STATISTICS OF INCOME FOR 1 943
PARTI
COMPILED FROM INDIVIDUAL INCOME AND VICTORY
TAX RETURNS, TAXABLE FIDUCIARY INCOME
AND VICTORY TAX RETURNS. ESTATE
TAX RETURNS, AND GIFT TAX
RETURNS
PREPARED UNDER DIRECTION OF THE
COMMISSIONER OF INTERNAL REVENUE
BY THE
STATISTICAL DIVISION
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1950
For tale by the Superintendent of Documents, U. S. Government Printing Office. Washington 25. D. C.
Price $1.00
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U. S. SUPERINTENDENT OF DOCUMENTS
MAY 5 1950
LETTER OF TRANSMITTAL
Treasury Department, Office of Commissioner of Internal Revenue,
Washington, D. C, January 31, 1950. Sir: In accordance with the provisions of section 63 of the Internal Revenue Code, requiring the annual preparation and publication of statistics with respect to the operation of Federal income tax laws, I have the honor to transmit herewith a report, "Statistics of Income for 1943, Part 1," setting forth by various classifications, data relative to the income, deductions, exemptions, credits, tax liability, and other pertinent facts reported on the individual and the taxable fiduciary income and victory tax returns for 1943 filed in 1944. The report also contains tabulations of data from the estate tax returns filed in 1944 for the estates of individuals irrespective of the date of death, and from the gift tax returns for 1943 filed in 1944. There are also included historical presentations of significant data reported on re- turns filed since the inception of the present period of income taxation under the sixteenth amendment to the Constitution, and a synopsis of tax rates, credits, and other provisions of the Federal income tax laws which affect the comparability of these historical data. Respectfully,
Geo. J. Schoeneman, Commissioner oj Internal Revenue. Hon. John W. Snyder,
Secretary of the Treasury.
m
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CONTENTS
Page Introduction 1~2
INDIVIDUAL INCOME AND VICTORY TAX RETURNS AND TAXABLE FIDUCIARY INCOME AND VICTORY TAX RETURNS
Summary data 2-4
Returns included 4
Changes in ibcome tax law 5-6
Basic items 6-9
Scope of estimated data 9-10
Classification of returns 10-13
Tabular arrangement of data 13-14
Simple and cumulative distribution by net income classes 14-16
Types of tax liability 17-25
Surtax and surtax net income (Form 1040) 26-28
Tax withheld, tax payments, and tax refund 29-45
Forgiven tax under the Current Tax Payment Act of 1943 46-59
Family relationship — individual returns with net income 60-62
Number of dependents — individual returns with net income 62-75
Sources of income and deduction 76-88
Patterns of income 88-92
Sole proprietorships 93-96
Government obligations and interest 97-98
Net gain or loss from sales or exchanges of capital assets 98-100
Medical and dental expenses 100-102
Comparability of income tax liability and tax collections 106
Description of the sample and limitations of data 106-1 15
Historical data 115-122
Individual and fiduciary returns 115-1 16
Capital gain and loss 116-120
Partnership returns, number of returns filed 120-121
Source Book of Statistics of Income 121-122
BASIC TABLES
1. Number of returns, net income or deficit, personal exemption, credit
for dependents, and tax analysis, by net income classes — individual
and taxable fiduciary returns 124-135
1-A. Number of returns, net income or deficit, personal exemption, credit for dependents, and tax analysis, by net income classes —
individual returns 136-147
1-B. Number of returns, net income, exemption, and tax analysis, by net
income classes — taxable fiduciary returns 148-153
2. Simple and cumulative distributions of number of returns, net income,
total income and victory tax, and income and victory tax on 1943 income, by net income classes — individual and taxable fiduciary re- turns 154-157
2-A. Simple and cumulative distributions of returns, net income, total income and victory tax, and income and victory tax on 1943 income, by net income classes — individual returns 158-161
3. Number of returns, net income, personal exemption, credit for depend-
ents, and income and victory tax on 1943 income, by net income classes and by sex and family relationship — individual returns with net income 162-172
VI CONTENTS
Page
4. Sources of income, deductions, and net income or deficit, by net in-
come classes — individual and taxable fiduciary returns 173-179
4-A. Sources of income, deductions, and net income or deficit, by net
income classes — individual returns 180-185
4-B. Sources of income, deductions, and net income taxable to the fidu- ciary, by net income classes — taxable fiduciary returns 186-189
5. Net gain from sales of capital assets, net loss from sales of capital
assets before and after statutory limitation, net short- and long- term gain or loss, and net capital loss carried over, by net income
classes — individual and taxable fiduciary returns 190-195
5-A. Net gain from sales of capital assets, net loss from sales of capital assets before and after statutory limitation, net short- and long- term gain or loss, and net capital loss carried over, by net income classes^individual returns 196-201
6. Government obligations owned and interest received, by net income
classes — individual returns 202-203
7. Government obligations owned and interest received, by net income
classes — taxable fiduciary returns 204^205
8. Number of returns, gross income, personal exemption, credit for de-
pendents, and tax analysis, by gross income classes — individual returns, Form 1040A 206-207
9. Sources of income, personal exemption, credit for dependents, and
income and victory tax on 1943 income, by gross income classes and
by sex and family relationship — individual returns, Form 1040A_ 208-213
10. Population, percent of returns to population, number of returns, net
income, and tax, by States and Territories — individual and taxable
fiduciary returns with net income 214-215
10-A. Number of returns, net income, and tax, by States and Territories — •
individual returns with net income 216-217
11. Number of returns, net income, total income and victory tax, and in-
come and victory tax on 1943 income, by States and Territories — - individual returns with net income by net income classes (Form 1040 A, by gross income classes) ; also, aggregate for taxable fiduciary returns with net income 218-251
HISTORICAL TABLES
12. Number of returns, net income, tax, and tax credits, 1913-1943 256-257
13. Number of returns, net income or deficit, tax, and effective tax rate, bv
net income classes, 1914-1943 258-264
14. Sources of income, deductions, and net income or deficit, 1916-1943- _ 265-277
15. Number of returns, net income, and total tax, by States and Terri-
tories, 1934-1943 278-283
ESTATE TAX RETURNS
Summary data 291
Federal estate tax law 291-293
Returns included 293-294
Basic items 294-297
Classification of returns 298
Nonresident aliens 298-299
Estate tax tables 299-322
1. Number of returns, items of gross estate, deductions, net estate,
and taxes, by revenue acts — ^taxable and nontaxable returns.- 302-305
2. Number of returns, items of gross estate, deductions, net estate,
and taxes, by net estate classes — taxable returns 306-31 1
3. Number of returns, items of gross estate, deductions, net estate,
and taxes, by gross estate classes — taxable returns 312-315
4. Number of returns, items of gross estate, deductions, net estate
(or no net estate) before exemption, by gross estate classes — nontaxable returns 316-319
5. Number of returns, by taxable status, and selected items for taxable
returns, by States and Territories — taxable and nontaxable returns 320-321
6. Number of returns, gross estate, net estate, and tax for all returns
filed, September 9, 1916, through December 31, 1944 322
CONTENTS VII
GIFT TAX RETURNS
Page
Summary data 327
Gift tax law 328
Returns included 329
Basic items 329-330
Classification of returns 330-33 1
Identical donors 33 1
Gift tax tables 33 1-342
1. Number of returns, total gifts by type of property, exclusions,
deductions, net gifts, and tax — taxable returns by net gift classes
and nontaxable returns in aggregate 334-336
2. Number of returns, total gifts before exclusions, exclusions, deduc-
tions, net gifts, and tax — taxable returns by total gifts plus tax classes and nontaxable returns by total gift classes 337-339
3. Value of gifts transferred in trust and of gifts otherwise trans-
ferred, by type of property — all returns 340
4. Number of returns, total gifts after exclusions, deductions, net
gifts, and tax, by taxable status — taxable and nontaxable returns
of identical donors _-- 340
5. Number of returns by net gift classes and by net gift for prior
years classes — taxable returns of identical donors who filed taxable returns for prior years 341
6. Number of returns, total gifts before exclusions, net gifts, and tax,
1932-1943 342
SYNOPSIS OF FEDERAL TAX LAWS AFFECTING THE COMPARABILITY OF HISTORICAL DATA IN STATISTICS OF INCOME
Individual and fiduciary returns:
A. Requirements for filing, amount of personal exemption, credit for
dependents, and normal tax rates, 1913-1943 344-349
B. Surtax rates and total surtax, 1913-1943 • 350-353
C. Optional tax (individual returns, Form 1040A, only) 1941-1943- _ 354-355
D. Provisions pertaining to capital gains and losses, excess-profits tax,
taxes paid to foreign countries, and earned income credit,
1917-1943 356-359
Estate tax returns:
E. Requirements for filing, amount of exemption, tax credits, tax
rates, and total estate tax, 1916-1944 360-363
Gift tax returns:
F. Requirements for filing, amount of exclusion, deductions, tax rates,
and total gift tax, 1924-1943 364^366
INCOME TAX FORMS
Facsimiles of Forms 1040, 1040A, 1041, and 1065 for 1943 368-396
Index 397-411
STATISTICS CF INCOME FOR 1943, PART I
INDIVIDUAL INCOME AND VICTORY TAX RETURNS, TAXABLE FIDUCI- ARY INCOME AND VICTORY TAX RETURNS, ESTATE TAX RETURNS, AND GIFT TAX RETURNS
INTRODUCTION
This annual report, compiled from data reported on individual income and victory tax returns, Forms 1040 and 1040A, taxable fiduciary income and victory tax returns. Form 1041, Federal estate tax returns, Form 706, and gift tax returns, Form 709, is prepared in accordance with section 63 of the Internal Revenue Code, which requires the preparation and publication annually of statistics rea- sonably available with respect to the operation of the income tax laws, including classifications of taxpayers and of income, the amounts allowed as deductions, exemptions, and credits, and other facts deemed pertinent and valuable.
The major portion of this report comprises income data and tax data tabulated from the individual income and victory tax returns, Forms 1040 and 1040A, and the taxable fiduciary income and victory tax returns. Form 1041, for 1943. Identical classifications are applied to the forms whenever possible, and data are tabulated together or in associated tables. The individual returns. Form 1040A, differ in many respects from returns. Form 1040, but are classified insofar as possible to correspond with the classifications used for Form 1040, in order that a complete coverage of individual returns may be pre- sented. The text relating to these income and tax data is followed by 18 detailed basic tables, some of which present composite data while others present data for each form of return, separately. In addition, there are four historical tables giving a resume of the income data and of the tax liability reported on individual and fiduciary returns filed in earlier years. No information is tabulated from the partnership returns of income, Form 1065; however, each partner is required to report on his individual income tax return his share of the profit or loss from any partnership of which he is a member. Facsimilies of the 1943 income and victory tax returns. Forms 1040, 1040A, 1041, and the partnership return of income, Form 1065, are inserted at the close of this report.
Data pertaining to the estate tax returns, Form 706, are compiled from returns filed during the calendar year 1944, irrespective of the date of death of the individual or the revenue act under which the estate is taxed. Data concerning the gross estate, deductions, specific exemption, estate tax, and tax credits are presented in five tables; the
2 STATISTICS OF INCOME FOR 1943, PART 1
sixth and last is a brief summary for estate tax returns filed since September 1916.
Information from gift tax returns, Form 709, regarding property- transferred by gift during 1943 and the tax liability of the donor, is tabulated in five tables; the sixth presents a brief summary of data for each year since June 7, 1932, the effective date of the present period of gift taxation.
In order to facilitate the comparison, from year to year, of the data assembled in the historical tables, there is included at the end of this report, a synopsis of Federal tax laws relating to income tax, estate tax, and gift tax, setting forth for each of the revenue acts important provisions affecting the comparability of these historical data.
Certain data from this report were published in the June 1947 Treasury Bulletin and some advance data for returns with net income of $5,000 and over were printed in the Treasury Bulletin, August 1945.
INDIVIDUAL INCOME AND VICTORY TAX RETURNS AND TAXABLE FIDUCIARY INCOME AND VICTORY TAX RETURNS
SUMMARY DATA
The total number of individual income and victory tax returns and taxable fiduciary income and victory tax returns filed for the income year 1943 is 43,819,194, an increase of 7,118,465 returns, or 19.4 per- cent, over the number filed for 1942. The returns for 1943 include 23,380,515 individual returns. Form 1040; 20,341,523 optional returns, Form 1040A, for individuals with gross income of $3,000 or less, derived wholly from salaries, dividends, interest, and annuities; and 97,156 taxable fiduciary returns, Form 1041.
The total income tax net income is $99,585,627,446, including gross income of $31,086,413,059 reported on Form 1040A, which does not provide for reporting the amount of net income. The net income for 1943 reflects an increase of $20,696,265,790, or 26.2 percent, over the net income shown in Statistics of Income for 1942, Part 1.
The income and victory tax on 1943 income is $14,590,017,548, of which $14,450,084,140 is from individual returns and $139,933,408 is from taxable fiduciary returns. The net victory tax of $2,314,114,600 is included; and tax credits of $16,803,446 relating to income tax paid at source on tax-free covenant bond interest and to income tax paid to a foreign country or United States possession, are deducted. The tax tabulated for individual returns is the tax computed on 1943 income, without regard to the comparison with the 1942 tax liability as pro- vided under the Current Tax Payment Act of 1943; and, therefore does not include the tax adjustments necessary for the merging of the 1942 and 1943 tax liabilities. Neither the tax on 1943 income nor the tax on 1942 income of individuals, as such, was collected in full because of the merging of the two taxes under that Act.
The income and victory tax on 1943 income before tax credits is $14,606,820,994, representing an increase of $5,680,109,071, or 63.6 percent, over the total income tax on 1942 income. In making this comparison, it should be noted that the tax on 1943 income iacludes the net victory tax.
STATISTICS OF INCOME FOR 1943, PART 1
The total income and victory tax liability is $17,145,912,269, including $139,933,408 income and victory tax on 1943 income from taxable fiduciary returns. Total income and victory tax of $17,005,- 978,861 from individual returns is the tax resulting from the merging of the 1942 and 1943 tax liabilities under the Current Tax Payment Act of 1943. It is the aggregate of (1) the income and victory tax on 1943 income less credits relating to income tax paid at source on tax-free covenant bond interest and to income tax paid to a foreign country or United States possession, (2) the amount by which the 1943 tax is increased to equal the 1942 tax liability, on returns showing a smaller tax (or no tax) for 1943 prior to such adjustment, and (3) the unforgiven portion of the 1942 or 1943 tax, whichever is smaller.
The average income and victory tax on 1943 income for returns classified as taxable on the basis of 1943 income is $362 as compared with $322 for taxable returns for 1942. The effective tax rate for income and victory tax on 1943 income is 14.9 percent as compared with 13.3 percent for the income tax on 1942 income. However, the average tax and effective tax rate for 1943 are computed on the tax including the net victory tax, after deducting the two tax credits mentioned previously, while those for 1942 are before such tax credits.
A summary of data for 1942 and 1943 is tabulated below, showing the amount and percent of increase or decrease in number of returns, net income, deficit, and taxes.
Individual returns and taxable fiduciary returns, 1943 and 194^: Number of returns, net income, deficit, and taxes
[For description of items and classifications, and methods of tabulating and estimating data, see pp. 6-13,
106-114]
[Money figures in thousands of dollars]
|
1943 |
1942 |
Increase or decrease (— ) |
||
|
Number or amount |
Percent |
|||
|
Total individual and taxable fiduciary returns: |
43, 819, 194 99, 585, 627 226, 346 14, 606, 821 14, 590, 018 702, 633 1, 853, 261 |
36, 700, 729 78, 889, 362 198, 598 8, 926, 712 Not available |
7, 118, 465 20, 696, 266 27, 748 5, 680, 109 |
19.40 |
|
26.23 |
||||
|
Deficit 2 |
13.97 |
|||
|
Tax on current year's income— before credits '— Tax on current year's income— after credits * Additional tax from returns with larger tax in 1942 |
63.63 |
|||
|
702, 633 1, 853, 261 |
||||
|
17, 145, 912 |
||||
|
Taxable individual and fiduciary returns: « With net income: ' Number of returns |
40,318,602 98, 150, 189 14, 606, 127 2, 033, 784 7, 464, 261 971, 266 1,823,396 2,313,421 16, 803 14, 589, 324 635,832 1, 853, 201 |
27, 718, 534 67, 060, 862 8, 926, 712 1, 445, 042 5, 720, 130 443, 593 1,317,947 |
12, 600, 068 31,089,328 5, 679, 415 588, 742 1, 744, 130 527, 674 505, 449 2,313,421 |
45.46 |
|
Net income ' |
46.36 |
|||
|
Tax on current year's income— before credits' |
63.62 |
|||
|
Normal tax |
40.74 |
|||
|
Surtax , . .- |
30.49 |
|||
|
Alternative tax 8 |
118. 95 |
|||
|
Optional tax ^ |
38.35 |
|||
|
Less credits for foreign tax paid and |
Not available Not available |
|||
|
Tax on cm-rent year's income— after credits * |
||||
|
Additional tax from returns with larger tax in 1942 |
635, 832 1, 853, 201 |
|||
|
Unforgiven tax.. |
4 STATISTICS OF INCOME FOR 1943, PART 1
Individual returns and taxable fiduciary returns, 1943 and 1942: Number of returns, net income, deficit, and taxes — Continued
[For description of items and classifications, and methods of tabulating and estimating data, see pp. 6-13,
106-114] [Money figures in thousands of dollars]
|
1943 |
1942 |
Increase or decrease (— ) |
||
|
Number or amount |
Percent |
|||
|
Taxable individual and fiduciary returns '—Con. With no net income: '2 Number of returns.- . _ |
18, 691 27, 988 694 3,526 61 |
18, 691 27, 988 694 3,526 61 |
||
|
Deficit 2 |
||||
|
Net victory tax '0 . |
||||
|
Additional tax from returns vi^ith larger tax in 1942 |
||||
|
Nontaxable individual returns: '3 With net income: ' Number of returns |
3, 283, 854 1, 435, 438 35, 756 198, 047 198, 358 27, 519 |
8, 819, 059 11,828,500 |
-5, 535, 205 -10,393,062 35, 756 34,911 -240 27. 519 |
-62. 76 |
|
Net income ' . . |
-87. 86 |
|||
|
Additional tax from returns with a tax in 1942 |
||||
|
With no net income: 12 Number of returns |
163, 136 198, 598 |
21.40 |
||
|
Deficit 2 |
-.12 |
|||
|
Additional tax from returns with a tax in 1942 |
For footnotes, see pp. 103-105.
RETURNS INCLUDED
The returns from which data in this report are tabulated, are in general, for the calendar year 1943. However, there are included returns for a fiscal year ending within the period July 1943 through June 1944, and returns for a part year with the greater part of the accounting period in 1943.
The returns from which data are tabulated are individual returns, Form 1040, 1040A, and 1040B, and fiduciary returns. Form 1041, with net income taxable to the fiduciary, filed for estates and trusts. The individual return, Form 1040, is filed by citizens and resident aliens except that individuals whose gross income is not more than $3,000 and is wholly from salaries and wages, dividends, interest, and annuities, may elect to file the optional return, Form 1040 A. The latter form does not provide for reporting of deductions or net in- come. Return Form 1040B is filed by nonresident aliens with business or office within the United States. Tentative returns are not included and amended returns are used only if the original returns are excluded.
Statistical data are taken from unaudited returns, prior to any revision that may be made as a result of audit by the Bureau of Internal Revenue. Facsimiles of individual returns. Form 1040 and 1040A, and of the fiduciary return. Form 1041, are on pages 368-388.
Returns with net income of less than $500 or with no net income appear in statistics for the reason that returns are required to be filed by or for (a) individuals and estates on the basis of specified amounts of gross income without regard to deductions or the amount of net income, (b) individuals who had a tax liability for 1942, re- gardless of the gross income for 1943, (c) deceased persons, if the gross income in the period prior to death is equal to, or in excess of, the allowable personal exemption, (d) taxpayers w^ho change their ac- counting period, if the gross income during the interim equals or exceeds the allowable personal exemption, (e) individuals establishing a claim for refund of tax withheld, and (J) trusts with net income of
STATISTICS OF INCOME FOR 19 43, PART 1 5
$100 or more or with a nonresident alien beneficiary regardless of the amount of net income.
CHANGES IN THE INCOME TAX LAW
The comparability of the income and tax data for 1943 with that of the previous year is affected by provisions, applicable to the 1943 income tax returns, contained in the Revenue Act of 1942, the Cur- rent Tax Payment Act of 1943, and the Revenue Act of 1943. The principal changes affecting the data tabulated from individual re- turns and fiduciary returns are as follows:
1. The minimum amount of gross income for which a return is required to be filed is reduced from $1,200 to $624 for a married person living with spouse, where the entire income is attributable to one spouse; a return is required of any person liable for an income tax for the income year 1942, regardless of the amount of gross income for 1943; and a person entitled to a refund on account of overwithholding of tax or overpayment of tax on a declaration of estimated tax is required to file a return in order to claim a refund or request a tax credit applicable to the 1944 estimated tax.
2. A victory tax is imposed applicable to taxable years beginning on or after January 1, 1943, which is 5 percent of the victory tax net income after a specific exemption of $624. A victory tax credit (with limitations) computed with regard to marital status and number of dependents is allowable against the victory tax. The amount of victory tax is limited to the excess of 90 percent of net income over the tax imposed by Chapter 1 of the Internal Revenue Code computed without regard to the victory tax or the tax credits.
3. Current collection of the income tax liability of individuals is effected through witliholding upon wages and through payments on declaration of estimated tax. Every withholding agent must deduct and withhold upon wages a tax equal to 5 percent of the excess of each wage payment over the withholding deduction allowable, on pay rolls after January 1, 1943. The withholding upon wages is mcreased to 20 percent of the excess of each wage payment over the withholding exemption allowable, effective for the first complete pay- roll period after July 1, 1943. To provide for the current collection of taxes on income not subject to withholding, persons receiving more than specified amounts of such income were required to file on September 15, 1943, a declaration of estimated tax for the taxable year. After deducting the estimated tax to be withheld and pay- ments on 1942 tax, the remaining estimated tax was due in two installments. The first installment was to be paid at the time of filing the declaration and the second on December 15, 1943. Amounts withheld upon wages or paid on account of the declaration as well as payments on 1942 tax liability are considered payments on the total income and victory tax liability.
4. In the adoption of the system of current collection of the tax liability of individuals, the income tax liability for 1942 is discharged, except that (1) for individuals whose income tax liability for 1942 is greater than for 1943, the tax liability for 1943 is increased by the amount by which the 1942 tax exceeds the tax for 1943; (2) for in- dividuals whose smaller tax liability, either 1942 or 1943, exceeds $66.67, the tax liability for 1943 is increased by 25 percent of the smaller
6 STATISTICS OF INCOME FOR 1943, PART I
tax; and (3) for individuals whose smaller tax liability, either 1942 or 1943, is more than $50 but not more than $66.67, the tax liability for 1943 is increased by the excess of the smaller tax over $50. In effect, the provisions of the Current Tax Payment Act of 1943 grant relief to those taxpayers who otherwise would be liable for payment during 1943 of taxes due for both 1942 and 1943, through the discharge (or forgiveness) of 100 percent of the lower tax where the lower tax liabil- ity is $50 or less; a percentage less than 100 percent but greater than 75 percent where the lower tax liability is more than $50 but not more than $66.67; and 75 percent where the lower tax liability exceeds $66.67.
In computing the increase in (1) above for an individual who was in the active service of the military or naval forces of the United States or any of the other United Nations at any time during the taxable year 1942 or 1943, the increase in the 1943 tax liability is reduced by an amount equal to that by which the 1942 tax is increased by reason of inclusion in the net income for 1942 of the earned net income.
5. Military and naval personnel exclude from the 1943 gross income $1,500 compensation received while in active service in the military or naval forces of the United States. This provision applies to both enlisted personnel and officers as well as to citizens or residents of the United States who are members of the military or naval forces of the other United Nations.
6. Returns for a fiscal year beginning in 1943 and ending in 1944 are subject to the law applicable to taxable years beginning on January 1, 1943, as well as the law applicable to taxable years beginning on January 1, 1944. A tentative tax is computed under each law; and each tentative tax is prorated on the basis of the number of days in such fiscal year before January 1, 1944, and after December 31, 1943, respectively. The tax liability is then determined by combining the two prorated tentative taxes.
BASIC ITEMS
Net income is the income tax net income. For individual returns, it is the excess of total income over total deductions; for fiduciary returns, it is income tax net income taxable to the fiduciary, that is, the excess of total income over the sum of total deductions and amounts distributable to beneficiaries. In the computation of income tax net income, a net gain from sales or exchanges of capital assets is included in total income to the extent provided by law (regardless of whether the alternative tax is imposed) or, in the case of a net loss from such sales or exchanges, the loss is included in total deductions to the extent provided under the limitation on capital losses. Net income is not reported on the optional returns. Form 1040A, therefore, gross income is tabulated as net income.
Deficit, for individual returns with no net income, is the excess of total deductions over total income; for taxable fiduciary returns with no net income, it is the excess of total deductions and the amount distributable to beneficiaries over total income. In the computation of deficit, a net gain from sales or exchanges of capital assets is included in total income to the extent provided by law or, in the case of a net loss from such sales, the loss is included in total deductions to the extent provided under the limitation on capital losses. Taxable fidu-
STATISTICS OF INCOME FOR 1943, PART 1 7
ciary returns with no net income appear in this report because there is a victory tax net income and victory tax thereon.
Surtax net income, for individual returns with normal tax and surtax liability, is the excess of income tax net income over the sum of personal exemption and credit for dependents; for returns with alternative tax liability, the surtax net income is income tax net income reduced by (1) the excess of net long-term capital gain over net short-term capital loss, (2) credit for personal exemption, and (3) credit for dependents. Surtax net income, for fiduciary returns with normal tax and surtax liability, is the excess of income tax net income taxable to the fiduciary over personal exemption allowable to an estate or the credit allowable to a trust in lieu thereof; for fiduciary returns with alternative tax liability, surtax net income is income tax net income reduced by (1) the excess of net long-term capital gain over net short-term capital loss, and (2) credit for personal exemption allowable to an estate or the credit allowable to a trust in lieu thereof.
Net income subject to normal tax, for individual returns, is the surtax net income less partially tax-exempt interest on Government obliga- tions, partially tax-exempt dividends on share accounts in Federal savings and loan associations, and earned income credit. Net income subject to normal tax, for fiduciary returns, is the surtax net income less the fiduciary's share of partially tax-exempt interest on Govern- ment obligations and partially tax-exempt dividends on share accounts in Federal savings and loan associations.
Victory tax net income on Form 1040A is gross income ; on Forms 1040 and 1041, it is gross income excluding gain or loss from sales of capital assets and interest on United States obligations which is exempt from normal tax — less deductions for the following: business expense; nontrade or nonbusiness expenses incurred either (a) for the production or collection of taxable income, or (b) for the management or mainte- nance of property held for production of taxable income; net operating loss deduction; alimony; and, in addition on Form 1041, the amount distributable to beneficiaries.
Normal tax and surtax liability is the sum of the normal tax and sur- tax. The normal tax is 6 percent of the net income subject to normal tax. Surtax is imposed on the entire surtax net income at graduated rates ranging from 13 percent on the first $2,000 to 82 percent on surtax net income over $200,000. Normal tax and surtax liabiHty is reported on (a) returns which show no sales or exchanges of capital assets, (b) returns showing a net loss from sales and exchanges of capital assets, and (c) returns with a net gain from sales or exchanges of capital assets unless the alternative tax is imposed.
Alternative tax liability is the sum of (a) normal tax and surtax (partial tax) computed on net income reduced for this purpose by the excess of the net long-term capital gain over the net short-term capital loss, and (6) 50 percent of such excess. The normal tax and surtax rates are the same as stated above. The alternative tax liability is reported on returns showing an excess of net long-term capital gain over net short-term capital loss, but only if the alternative tax is less than the combined normal tax and surtax on net income which in- cludes the net gain from sales or exchanges of capital assets.
Optional tax liability is the tax paid in lieu of normal tax and surtax by individuals who have income of $3,000 or less from certain sources
8 . STATISTICS OF INCOME FOR 1943, PART 1 *
only, and who elect to file Form 1040 A. The optional tax, provided in Supplement T of the Code, allows for personal exemption and earned income credit, and also allows for deductions amounting to approxi- mately 6 percent of total income.
Net victory tax is 5 percent of the victory tax net income after deduct- ing a specific exemption of $624 — less a credit (with limitations) of 25 percent of the tax for a single person, or 40 percent for a married person, plus 2 percent for each dependent. Net victory tax liability is limited to the excess of 90 percent of the taxpayer's net income over the tax imposed by Chapter 1 of the Code, computed without regard to victory tax, or to credits for foreign taxes paid, taxes withheld at source on tax-free covenant bond interest, and taxes withheld upon wages.
Credits for foreign tax paid and tax paid at source are the sum of two tax credits — the income tax paid at source on tax-free covenant bond interest and the income tax paid to a foreign country or United States possession. These credits were not tabulated last year.
Income and victory tax withheld upon wages, in accordance with sec- tions 466 and 1622 of the Code, is 5 percent of the excess of wage pay- ments over withholding deduction from January through June and 20 percent of the excess of wage payments over withholding exemption from July through December 1943.
Payments on declaration are those made on the balance of estimated tax remaining after deducting the estimated tax to be withheld and the payments made to collectors during 1943 on the 1942 income tax liability.
Income and victory tax on 1943 income is the tax computed on the income reported for 1943, consisting of either the normal tax and surtax (or optional tax paid in lieu thereof) or the alternative tax, and the net victory tax, after deducting the tax credits relating to income tax paid at source on tax-free covenant bond interest and to income tax paid to a foreign country or United States possession. Unlike the tax tabulated in the 1942 report, the current year tax includes the net victory tax and the two tax credits are deducted.
Additional tax from returns with a larger tax in 19^2 is an amount imposed under the Current Tax Payment Act of 1943 adopted to accomplish the current collection of the income tax liability. Under this act individuals liable for a tax in both 1942 and 1943 pay the larger of the two taxes; therefore, individuals whose income tax for 1942 is greater than the tax for 1943 increase the latter by an amount equal to the excess of the 1942 tax liability over the tax for 1943. This additional amount of tax is tabulated separately from the tax computed on income reported for 1943.
Unforgiven tax, either 1942 or 1943, is that portion of the smaller tax, i942 or 1943, which is not discharged (or forgiven) in granting relief to individuals who otherwise would be liable for the payment, during 1943, of taxes due for both 1942 and 1943. If the smaller tax is more than $66.67, the unforgiven tax is 25 percent of the smaller tax; if the smaller tax is more than $50 but not more than $66.67, then the unforgiven tax is the excess of the smaller tax over $50.
Unforgiven tax postponed is one-half of the unforgiven tax for tax- payers who elect to postpone payment thereof until March 15, 1945.
Total income and victory tax, reported on individual returns for 1943, is the tax resulting from the merging of the 1942 and 1943 tax liabili-
STATISTICS OF INCOME FOR 1943, PART 1 9
ties under the Current Tax Payment Act of 1943. It is the aggregate of (1) the income and victory tax on 1943 income less credits for tax paid at source on tax-free covenant bond interest and for tax paid to foreign countries, (2) the amount by which the 1943 tax is increased to equal the 1942 tax liability, on returns showing a smaller tax (or no tax) for 1943 prior to such adjustment, and (3) the unforgiven portion of the 1942 or 1943 tax, whichever is smaller. In tables containing com- posite data for individual and fiduciary returns, total income and victory tax includes also the income and victory tax on 1943 income from the fiduciary returns.
Tax refund or tax credit on 19^4 icix occurs when there are payments through tax withheld by employers and/or payments on declaration of estimated tax in excess of the total income and victory tax liability. At the option of the taxpayer, the excess thus paid is refunded to the taxpayer or it is applied against his estimated tax for 1944.
Personal exemption allowable against income tax net income for a single person, a married person not living with husband or wife, or an estate, is $500; for a person who, during the entire taxable year, was head of a family or was married and living with husband or wife, the personal exemption is $1,200. A credit of $100 against income tax net income is allowable for a trust in lieu of personal exemption. If the marital status of an individual who files return, Form 1040, has changed during the taxable year, the personal exemption is apportioned according to the number of months before and after such change; whereas, the marital status and personal exemption of an individual who files the optional return. Form 1040A, is determined as of July 1, 1943, without regard to any change that may have occurred during the year.
Credit for dependent of $350 is allowable against normal tax net income reported on Form 1040, for each person (other than husband and wife) under 18 years of age, or incapable of self-support because mentally or physically defective, whose chief support was received from the taxpayer. If the taxpayer's status with regard to depend- ents changes during the year, the credit is prorated according to the number of months before and after such change when reported on Form 1040. A credit of $385 is allowable against gross income reported on Form 1040 A, for each dependent as of July 1, 1943, without regard to changes that occur during the year. In the case of a taxpayer who is the head of a family only by reason of one or more dependents for whom he would be entitled to credit, a credit is allowable for each of such dependents except one.
Earned income credit is 10 percent of the earned net income which cannot exceed $14,000, or 10 percent of the net income, whichever is smaller. The earned income credit tabulated for the optional returns. Form 1040 A, is estimated at 9.4 percent of the gross income (equivalent to 10 percent of the income after deductions aggregating 6 percent of gross income).
SCOPE OF ESTIMATED DATA
Owing to the increased number of returns filed by individuals for 1943, it is necessary to estimate data for a larger segment of returns than heretofore, in tabulations of data pertaining to the United States
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10 STATISTICS OF INCOME FOR 1943, PART 1
as a whole. Formerly, data were estimated only for the individual returns, Form 1040, with net income under $5,000 and for optional returns, Form 1040A. In contrast with former years, the 1943 data for individual returns with net income of $5,000 under $20,000 are estimated from samples, as well as data for retm-ns with net income under $5,000 including the optional retiu-ns, in all tables presenting data on a national basis. Data for individual returns with net income of $20,000 and over are tabulated from each return.
Limited data on a State basis are estimated for individual returns, Form 1040, with net income under $5,000 and for optional returns, Form 1040A, for 1943, as was the case in former years; and similar data are completely tabulated from returns with net income of $5,000 and over.
The procedure employed in the selection of samples for both the national data and the State data from the returns filed in each collec- tion district, and the method of estimating these data, together with the relative sampling variations to be expected, are explained in the description of the sample and limitations of data, on pages 106-115.
Data for the taxable fiduciary returns are tabulated from each return