TAX LIABILITY The tax liability includes the normal tax, surtax, and the alternative taxes paid in lieu thereof; namely, the optional tax, provided under Supplement T, and the alternative tax on income which includes a capital gain from sales of capital assets held for more than 6 months, provided under section 117 (c) (2). Although the normal tax and surtax are separate entities, the two taxes are jointly computed and reported on the return. The tentative normal tax rate is 3 percent of the net income subject to normal tax; and the tentative surtax rates range from 17 percent of the first $2,000 of surtax net income to 88 percent of such income in excess of $200,000; however, the combined tentative normal tax and surtax is reduced by 17 percent of the first $400 of combined tentative tax plus 12 percent of the combined tentative tax over $400 but not over $100,000 plus 9.75 percent of the excess over $100,000. The resultant tax, computed without regard to tax credits, cannot exceed an amount equal to 77 percent of the taxpayer's net income. In the case of a joint return of husband and wife, the combined normal tax and surtax is twice the combined normal tax and surtax determined on the income (after deductions and credits against net income) reduced by one-half. The optional tax, provided under Supplement T in the form of a tax table stating the tax liability for various adjusted gross income brackets and number of exemptions, may be used at the election of the taxpayer whose adjusted gross income from whatever source is less than $5,000. The optional tax automatically allows for the standard deduction, which is 10 percent of the amount of the midpoint of the adjusted gross income bracket, and for the allowable exemptions, after which the optional tax is determined (to the nearest dollar) in the same manner and at the same rates as those used in computing the tax in detail. In tabulating tax data, no distinction is made between the optional tax and the combined normal tax and surtax. The alternative tax on income containing a net long-term capital gain or an excess of net long-term capital gain over net short-term capital loss is imposed if, and only if, the alternative tax is less than the regular normal tax and surtax. The alternative tax is the sum of (1) a partial tax computed at the regular rates on net income reduced for this purpose by the amount of such long-term capital gain and (2) 50 percent of such long-term gain. The alternative tax occurs only on long-form returns, Form 1040, and is ineffective on separate returns with surtax net income under $22,000, and joint returns with surtax net income under $44,000. The tax liability tabulated in this report is the tax after the two credits relating to income tax paid at source on interest from tax-free convenant bonds and to income tax paid to a foreign country or possession of the United States. These credits are reported only by taxpayers who itemized deductions. The tax credits are not tabulated this year. The tax liability is presented in table 2, for returns with standard deduction and for returns with itemized deductions; and in table 4 returns with normal tax and surtax are shown separately from TAX PAYMENTS AND TAX OVERPAYMENT For the majority of individuals, income tax is paid, in whole part on a current basis through the tax withheld on wages by emp and the payments made on declaration of estimated income t persons who are not subject to the withholding on wages or who withheld is insufficient to cover the tax liability. If these pay do not cover the total tax liability, the balance is paid with the of the final return after the close of the income year. If the tax held and payments on declaration exceed the total tax liabilit overpayment of tax is refundable to the taxpayer unless he sig on a return, Form 1040, that he wishes the overpayment to be cr on his 1949 estimated tax. The amount of tax withheld on wages is determined by emp either by (1) use of the wage bracket withholding tables, in whi amounts to be withheld are based on various wage levels aft allowance for withholding exemption, or (2) application of the scribed percentage rate to the amount of wages in excess of the holding exemption. Amounts to be withheld under either method reduced, by the 1948 act, applicable with respect to wages paid after May 1, 1948. Certain types of wage and salary payments as those for military service, agricultural labor, domestic service ministry of the gospel, are exempt from withholding. The an of tax withheld is tabulated in table 2 and the frequency of re showing a tax withheld is presented in table 3. Payments on 1948 declaration of estimated tax, reported b taxpayer on return, Form 1040, as a payment on the 1948 tax lial are a combination of (1) amounts paid on the 1948 Declarati Estimated Tax, Form 1040-ES, and (2) any credit applied ag the 1948 estimated tax on account of an overpayment of the income tax. Payments on 1948 declaration of estimated tax (incl credit for 1947 tax overpayment) are tabulated in table 2; and quency of returns showing such payments is tabulated in tab This frequency is not indicative of the number of taxable declara filed, but is rather a frequency of the income tax returns which payments on 1948 declaration of estimated tax as a payment o 1948 tax liability; and such frequency is without regard to wh the payments are (1) only cash payments on 1948 declaration, (2) credit claimed on account of the 1947 tax overpayment, or (3) a bination of cash payments on declaration and the credit for 1947 overpayment. A declaration of estimated tax does not necess result in actual payment because the estimated tax may be nil, the case of an estimated tax, the tax to be withheld and any credi the prior year's tax overpayment may leave no unpaid balance. Tax due at time of filing is the excess of the 1948 tax liability the sum of the tax withheld, payments on 1948 declaration of estim tax, and any credit for the 1947 tax overpayment. The amour tax due is paid with the filing of the final return after the close of income year. The amount of tax due is shown in table 2, and frequency of returns on which this item occurs is tabulated in tab Overpayment of the 1948 tax liability occurs if the sum of (1) withheld, (2) payments on the 1948 declaration of estimated tax, Such tax overpayment is refundable, or at the request of the taxpayer using Form 1040, will be credited against his 1949 estimated tax. The amount of 1948 tax overpayment is tabulated in table 2; and the frequency distribution of returns with tax overpayment is shown in table 3. The final report will show the overpayment separated as to refunds and credit on 1949 estimated tax. DESCRIPTION OF THE SAMPLE AND LIMITATIONS OF DATA Tables 1 to 4 in this report were derived from a basic stratified random sample of individual income tax returns designed to comprise 1 percent of returns, Form 1040A and Form 1040, with adjusted gross income under $7,000; 10 percent of returns, Form 1040, with adjusted gross income from $7,000 to $10,000; 20 percent of returns, Form 1040, with adjusted gross income from $10,000 to $25,000; and 100 percent of returns, Form 1040, with adjusted gross income of $25,000 or more. The different administrative processes applied to the various categories of returns in collectors' offices affected somewhat their availability for sampling. These categories were sufficiently heterogeneous with respect to data tabulated to warrant independent controls. Accordingly, returns in each of the above income ranges were further stratified to assure homogeneous groups subject to uniform administrative processing for sample selection, tabulation, and weighting purposes. Precise 1 percent, 10 percent, and 20 percent representation of returns with adjusted gross income under $7,000, from $7,000 to $10,000, and from $10,000 to $25,000, respectively, was not achieved. However, the over-all universes, applicable to the separate sampling strata, were independently estimated and the data tabulated from the samples were extended to such universes. Variation In computing the possible variation of a given frequency due to random sampling, a range of two standard errors was used; chances are 19 out of 20 that the frequency as estimated from the sample tabulation differs from the actual frequency, if the entire universe were tabulated, by less than twice the standard error. beyond the two-error limit would occur only 1 time in 20 and would be sufficiently rare to justify a two-error range in defining sampling variability. Accordingly, in cells associated with taxable or nontaxable adjusted gross income classes under $7,000, frequencies of the magnitude of 1 million or more are subject to variation of less than 2.8 percent; variation for lesser frequencies increases to a maximum of 9 percent at 100,000, and a maximum of 28 percent at 10,000. In cells associated with adjusted gross income classes from $7,000 to $25,000, frequencies of the magnitude of 100,000 or more are subject to less than 2.8 percent variation; variation for lesser frequencies increases to a maximum of 9 percent at 10,000, and a maximum of 28 percent at 1,000. The degrees of variability noted above relate only to cell frequencies and do not indicate the variability associated with money amounts of income, deductions, or tax. Data in table 5, distributed by States and Territories, are derived from the basic sample described above, except that the returns with no adjusted gross income are excluded since the sampling variability is too great to permit their presentation on a State basis. The aggregate data relative to returns with adjusted gross income by States in table 5 do not precisely agree with corresponding United States totals in tables 1 through 4. Minor discrepancies occur as a result of (a) the dual system of weighting, involving one series of weights uniformly applicable to all collection districts for the national distributions and independent series of weights for each collection district for the State distributions, and (b) the use of rounded weighting factors. TAXABLE FIDUCIARY INCOME TAX RETURNS The total number of taxable fiduciary income tax returns filed for the income year 1948 is 101,283. This is 8,714 returns, or 7.9 percent, less than were filed last year. The total income reported is $986,806,000, a slight increase over the total income for 1947. The net income taxable to the fiduciary is $530,360,000, resulting in a tax liability of $176,309,000. Comparative data, taxable fiduciary returns, 1948 and 1947 These preliminary data are subject to such revisions as are found necessary upon further processing of the returns for additional statistics for the complete report. Throughout the tables money amounts are rounded to the nearest thousand and, therefore, may not add to the totals. The taxable fiduciary returns included in Statistics of Income are for the calendar year 1948, a fiscal year ending within the period July 1948 through June 1949, and a part year with the greater portion of the accounting period in 1948. An exiguous number of taxable returns for estates and trusts filed improperly on Form 1040 are included; however, the data thereon are edited to conform to that reported on Form 1041. Tentative returns are not included and amended returns are used only if the original returns are excluded. Statistical data are completely tabulated from each taxable fiduciary return, prior to official audit by the Internal Revenue Bureau. Although only the taxable fiduciary returns are included in Statistics of Income, nevertheless a return is required to be filed for an estate if the gross income is $600 or more, for a trust if the net income is the net income, and for every estate or trust of which any beneficiary is a nonresident alien. The rates of tax, the provisions respecting income to be reported, and the tax credits applicable to the income of individuals apply also to the income of estates and trusts. The net income of an estate or trust is computed in the same manner and on the same basis as in the case of an individual, except that, in lieu of the deduction for contributions to charitable, religious, scientific, literary, and educational organizations allowed to individuals, there is allowed as a deduction any part of the fiduciary gross income, without limitation, which is set aside to be used exclusively for such purposes; and there is allowed, as an additional deduction, the amount of income which is to be distributed currently or becomes payable to beneficiaries, as well as amounts which in the discretion of the fiduciary may be distributed to the beneficiary or accumulated, if such amounts are reported in the income of the beneficiary. An estate is allowed an exemption of $600 and a trust is allowed an exemption of $100 in the form of a credit against net income for the purposes of both the normal tax and the surtax. The tax, based on net income taxable to the fiduciary less exemption, is a liability of the fiduciary to be paid after the close of the income year inasmuch as fiduciary income is not subject to current collection. Data with respect to sources of income reported on the taxable fiduciary returns are tabulated, as nearly as possible, in the same manner as those reported on the individual returns. The net profit and the net loss from a similar source reported under income are tabulated in juxtaposition so that when the positive and negative amounts are combined with other items of income, the resultant total income is an approximation of the adjusted gross income tabulated for individual returns elsewhere in this report. No tabulation for aggregate data from taxable fiduciary returns and individual returns is made for Statistics of Income. It should be noted that the fiduciary return, Form 1041, differs in many respects from the individual return, Form 1040. Furthermore, the method of reporting certain items of income and deductions on the fiduciary return varies from the method of reporting similar items on the individual return, so that slight differences exist between some items common to both returns. These deviations can be determined from a comparision of the footnotes attached to the items. Total income, being a combination of the profit and loss from rents and royalties, from trade and business, from partnerships, from sales of capital assets or other property, together with income from dividends, interest, other fiduciaries and miscellaneous income, provides a base for the classification of returns by size of income which is similar to the concept of adjusted gross income used for the classification of the individual returns. In table 6, compiled from taxable fiduciary returns, income and loss from each of the sources comprising total income, total income, deductions, amount distributable, net income, exemption, and tax liability are tabulated by total income classes. Additional data and |