gram, and the new health insurance premium tax credits and cost-sharing reductions created under the law.

AGI, which is calculated on the front page of IRS Form 1040, is the amount of the taxpayer’s income that is subject to tax. Exemptions and deductions are subtracted from AGI to determine taxable income. Although there is substantial overlap between Census money income and AGI, AGI excludes some sources that are included in Census money income, excludes portions of other sources that are in Census money income, and includes some additional sources that are not included in Census money income.

The following sources, which are included in Census money income (although not necessarily well reported by survey respondents), are not taxable and therefore are excluded from AGI (Henry and Day, 2005):

  • Interest and dividends on funds held in tax-deferred retirement accounts—these become taxable only when funds are withdrawn;
  • Tax-exempt interest from state and municipal bonds;
  • Workers’ compensation;
  • Veterans’ benefits;
  • Benefits from private disability insurance if the premiums were paid by the taxpayer;
  • Public assistance and Supplemental Security Income;
  • Child support;
  • Assistance from friends and relatives; and
  • Educational assistance used for tuition and books (i.e., educational expenses).

Of these, only tax-exempt interest is even reported on the tax return, and it appears on a separate line rather than as part of a total interest amount. If a survey questionnaire follows the tax return, then it would have to include separate questions to capture these several sources.

Moreover, the two largest components of Census money income— wage and salary income and Social Security benefits—are not fully taxable for most people and therefore may not be fully included in AGI. Taxable wage and salary income excludes pretax deductions for a variety of special purposes, which have been growing in type and total value. These include

  • Contributions to a 401(k) or similar plan, which can be as high as 12 percent of gross earnings for workers who are not nearing retirement and higher for older workers, who are allowed to make contributions above 12 percent if they set aside less than the maximum amount in earlier years;
  • Funds set aside for health care flexible spending accounts (up to $5,000 annually through 2012 and dropping to $2,500 thereafter);


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