Number of millionaires soared during last year's stock rally

The number of Americans reporting more than $1 million in income is up this year by a whopping 41 percent, new IRS figures show.

The agency said it processed 387,840 returns showing seven-figure incomes by mid-July, compared with 274,879 during the same time last year.

The increase, outstripping gains seen further down the income ladder, appears to be fueled in part by the run up last year on Wall Street.

People with north of $1 million cumulatively reported $252.5 billion in capital gains, an 80 percent increase from the previous year. Their salaries and wages climbed by 45 percent.

“It’s a dramatic increase,” said Mark Booth, a former top official at the Congressional Budget Office.

The figures underscore how many people did well during the pandemic.

They may also help explain why the economy has held up better than many expected as well as why inflation has proven so persistent, since some people had significantly more disposable income to buy things than it appeared.

And the data points to the tidal wave of tax revenue now pouring into the Treasury. Tax receipts this year are expected to jump by nearly $1 trillion — more than the Pentagon’s annual budget. Forecasters expect total income taxes paid by individuals will reach the highest level in more than a century.

Experts caution the IRS figures are preliminary.

People who requested filing extensions, which tend to be higher earners, have until Oct. 17 to complete their returns. And comparisons to 2021 are not perfect because last year’s filing deadline was moved to May, so the IRS may have processed a different mix of returns by last summer.

The agency says the new return statistics cover 95 percent of this year’s anticipated filings.

The number of people reporting million-dollar earnings is not just up since the onset of the pandemic, but to previous ones as well. In the 2020 filing season, covering the previous year’s earnings, the IRS counted 260,000 seven-figure returns during the same period.

The agency's numbers also show more people are reporting capital gains.

So far this year, the IRS says it’s seen 27 million returns with such gains or losses, compared with 23.2 million last year and 20.6 million in the year before the pandemic.

Prices of stocks, homes and other assets swelled much of last year, thanks to ultra-low interest rates, which had budget forecasters repeatedly revising up their capital gains estimates.

The Federal Reserve has since raised interest rates significantly, in a bid to reduce inflation, which has triggered a steep decline in asset prices — which means many of the gains people have enjoyed in recent years are being reversed.

“Usually capital gains realizations follow the stock market,” said Booth.

“You would expect a significant reduction in capital gains realizations in tax year 2022 based on the first nine months” of this year.