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Steinberg Hall - Dietrich Hall on May 1, 2021. Credit: Diego Cárdenas

Penn Wharton Budget Model released a new report on May 23 finding that households owed over $500 billion in taxes in 2022, a $200 billion increase from before the COVID-19 pandemic began in 2020.

Households owed around $300 billion in taxes in the years directly before the pandemic on average. In 2021, that statistic decreased to slightly less than $250 billion. However, the amount increased significantly this year due to a surge in capital gains and income from financial assets in 2021. 

The value of corporate equities and mutual fund shares owned by households grew by 40% in 2021 as the U.S. economy recovered from the pandemic, which is nearly twice as fast as any other year since 1990, the report stated.

While firms typically pay estimated taxes on financial income — which includes capital gains, dividends, and taxable interest — over the year by check, most households pay the full amount of non-withheld taxes they owe at time of filing using electronic payments.

The amount of taxpayers paying through electronic payments has been on the rise in recent years and rose sharply in 2022. This surge suggests that household income changes are the primary source of the recent increase in taxes owed. 

The Penn Wharton Budget Model also states that the “rapid asset price appreciation and broadening participation in markets” signifies an abnormally high level of household income in 2021.

As financial income increases, taxes owed when households file their returns tend to increase as well, with the Penn Wharton Budget Model finding a strong positive correlation between the two factors from 1990 to 2019. 

In 2021, Penn Wharton Budget Model estimates indicate that financial income accounted for nearly 20% of gross income, more than any other year since 1990.