What Is the Top 1% Income in the US?
Uncover the current income threshold for the top 1% in the US. Understand how this key economic figure is defined and its components.
The “top 1% income” in the U.S. refers to the highest earning individuals or households within the national income distribution. This metric is frequently discussed in economic contexts to understand income inequality and the distribution of financial resources, providing a benchmark for examining income concentration.
Defining the Top 1% Income Threshold
The income threshold for the top 1% typically refers to Adjusted Gross Income (AGI). AGI is your total gross income from all sources minus specific adjustments, such as deductions for IRA contributions, student loan interest, or certain self-employment taxes. It is a pre-tax figure calculated before standard or itemized deductions.
The income threshold for the top 1% varies by individual or household income, year, and data source. For example, the 2023 cutoff for a top 1% household income was approximately $591,550. For individuals, 2021 IRS data adjusted to June 2024 dollars showed a threshold of $787,712, while another 2021 analysis indicated AGIs of at least $682,577.
In 2022, average wages for the top 1% of earners, based on Social Security Administration data, reached $785,968. However, some analyses for 2022 household income placed the threshold higher, at approximately $1,199,812. These variations highlight that different methodologies and income definitions, such as wages only versus AGI including investment income, yield different figures. Thresholds are dynamic, changing yearly due to economic factors like wage gains and market performance.
To provide broader context, the income thresholds for other high-earning groups are considerably lower. For instance, in 2021, an AGI of at least $252,840 was needed to be in the top 5% of earners. To break into the top 10%, an AGI of at least $169,800 was required. These figures underscore the jump in income required to move into the top 1% compared to the top 5% or 10%.
Primary Sources of Top 1% Income
The top 1% typically earns income from diverse sources, often weighted differently than for the general population. A component is earned income, including high executive compensation, bonuses, and other direct employment earnings from leadership roles or successful ventures.
Beyond traditional salaries, business income plays a role for many in the top 1%. This category encompasses profits from privately held businesses, income from partnerships, and earnings distributed from S-corporations. These forms of income reflect ownership stakes and active participation in successful enterprises, where profitability directly translates into personal income.
Investment income is another major source, increasingly prominent at higher income levels. This includes capital gains from selling assets like stocks, bonds, real estate, or business interests. Dividends and interest from financial instruments also contribute. While Social Security Administration data primarily tracks wages, excluding capital gains, market surges have boosted high-income earners’ fortunes.
Understanding Income Versus Wealth
It is important to distinguish between income and wealth. Income refers to a flow of money received over a specific period, such as annual earnings, business profits, or investment returns. It represents money coming in, like a stream, used to cover daily expenses and short-term financial needs.
Wealth, conversely, represents the total value of all assets owned minus any liabilities at a particular point in time. This includes savings, investments, real estate, and business interests, with liabilities like mortgages or debts subtracted. Wealth is an accumulated stock, like the total amount of water in a bathtub, while income is the water flowing into it. While income is essential for immediate needs, wealth provides long-term financial security and can be passed down through generations.
A high income contributes to wealth accumulation, but they are not interchangeable. A high-income earner might have low wealth if they spend heavily, while someone with modest income can build wealth through saving and investing. For instance, a retiree might have assets but low annual income. The top 1% of U.S. households hold a share of the nation’s total wealth, reflecting both high income and asset accumulation.