Real median household income after taxes fell 8.8% to $64,240 from 2021 to 2022 and the poverty rate after taxes as measured by the Supplemental Poverty Measure (SPM) increased 59% to 12.4%.
Story by John Creamer, SPM team lead in the Census Bureau’s Poverty Statistics Branch, and Matt Unrath, chief of the Census Bureau’s Income Statistics Branch
These significant changes in after-tax income and poverty rates of U.S. households were much larger than the annual changes in before-tax income and poverty, according to U.S. Census Bureau data released earlier this month.
The expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty.
The Census Bureau reports, Income in the United States: 2022 and Poverty in the United States: 2022, show that before taxes, median household income declined 2.3% to $74,580 and the poverty rate (11.5%), as measured by the official poverty measure, was not statistically different from 2021.
This dramatic difference can be attributed to key changes in federal tax policy.
In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.
In 2020 and 2021, most households also received Economic Impact Payments (EIP) that were no longer issued in 2022.
The rollback of these tax policies had the largest effect on post-tax income among the nation’s lowest-income households.
In 2021, for example, post-tax income at the 10th percentile, meaning at the bottom of the income distribution, was 17.1% higher than the corresponding pretax income estimate, reflecting the substantial boost that lower-income households received that year from the EIP and expanded CTC.
In contrast, the 2022 estimates of pretax and post-tax income at the 10th percentile were not significantly different (Figure 1).
Lower post-tax income, particularly at the bottom of the income distribution, also resulted in an increase in income inequality.
The Gini index, a common measure of how spread out or unequal incomes are, for pretax income was 1.2% lower in 2022 than in 2021, reflecting real income declines at the top of the income distribution. However, the post-tax Gini index was 3.2% higher due to substantial declines in post-tax income among lower-income households.
Lower Income, Higher Poverty
The decline in post-tax income also corresponds to an increase in the SPM, which incorporates noncash government assistance programs like the Supplemental Nutritional Assistance Program (SNAP) and taxes, through income and payroll taxes and refundable tax credits like the CTC and EITC.
The 4.6 percentage point increase in the SPM poverty rate was driven almost entirely by the change in tax policy (Figure 2). When a version of the SPM excluding taxes is examined, the poverty rate did not change: 12.6% in 2022, not statistically different from 2021.
The expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty (Figure 3).
In 2021, 9.6 million people were kept out of poverty due to refundable tax credits. This number declined to 6.4 million in 2022 as the pandemic era expansions expired. The effect declined for each of the major age groups, with 3.5 million children lifted out of poverty in 2022 compared to 4.9 million in 2021.
The technical documentation page includes information on confidentiality protection, methodology, sampling and nonsampling error, and definitions. All comparative statements in this report have undergone statistical testing, and, unless otherwise noted, all comparisons are statistically significant at the 90 percent significance level.