The number of New York residents with incomes above $1 million hit a new high in the Wall Street boom year of 2021—but the state’s share of all U.S. income millionaires dropped lower, according to new Internal Revenue Service (IRS) data released today.

Fueled by soaring stock prices, record financial sector bonuses and an enormous capital gains increase, the number of New York income millionaires in the federal income tax base rose from 55,100 in 2020 to 75,580 in 2021—an increase of 37 percent—the IRS state-level breakdown shows.

However, while the jump in New York millionaires was impressive in isolation, the Empire State trailed far behind the nation as a whole by this measure.

New York added income millionaires at a lower percentage rate than any state in 2021—far below both the national average of 58 percent and median of 63 percent. Neighboring Connecticut had the second lowest millionaire earner increase, at 42 percent.

The latest IRS data release does not measure or estimate interstate taxpayer migration, which is the focus of a separate IRS dataset next due for release in June. However, today’s data provide an important indirect indicator of the extent to which the state is retaining its relative share of different segments of the nation’s tax-filing population.

Still sinking

The latest data reflect the continuation of a long-term trend that has seen New York’s share of income millionaires fall almost every year for more than a decade, from a high point of 12.7 percent of the national total in 2010, as depicted in the chart below.

 

New York’s share of adjusted gross income for income millionaires roughly held steady in 2021, as also shown above. This was largely due to strong growth in the capital gains income of Empire State millionaires, which increased 167 percent compared to a national average of 162 percent, and to a second consecutive year of record-high securities industry bonuses, which rose another 20 percent in 2021.

The latest IRS data are noteworthy because 2021 income-tax returns, filed in 2022, reflect the second year affected by the profound economic disruption following the COVID-19 outbreak of early 2020. Adding to the burden at the top of the Empire State’s income pyramid, New York income millionaires were targeted by record income tax hikes as part of the state budget enacted in April 2021 and effective, retroactively, for the entire 2021 tax year.

The IRS data show that the largest percentage growth in income millionaires in 2021 was concentrated in relatively less populous (if recently fast-growing) states that had comparatively smaller numbers of top earners to begin with—a list topped by Montana, Idaho, and Utah, all of which saw their millionaire populations double in 2021.  Five of the 10 states with the fastest 2020-21 growth in income millionaires imposed no income tax during the period; of the rest, only two—Vermont (8.75 percent) and Maine (7.15 percent)—have relatively high marginal income tax rates by national standards, although both are much lower than New York’s 10.9 percent.

Among populous, well-developed New York peer states with established populations of wealthy households, Florida and Texas—which have no state income taxes—experienced stronger millionaire-earner growth of 55 and 52 percent, respectively. High-tax California exceeded all large states with a 66 percent increase in its millionaire population.

Although California has the nation’s highest statewide income tax rate (13.3 percent), its high-income population also includes a relatively entrenched (if increasingly footloose) concentration of Silicon Valley investors, executives and profit-sharing participants in the tech sector, which dominated U.S. capital markets from 2010 through 2021. (More recently, however, California’s state income tax receipts—heavily dependent on high earners—have dropped sharply, triggering a dire 2024-25 budget outlook in that state.)

Continuing another trend, New York’s relative loss of high earners wasn’t confined to the $1 million-and-up bracket. The total number of New York filers reporting incomes of $200,000 or more increased in 2021 by 19.5 percent—trailing the national average of 28 percent, and dead last out of 50 states (exceeded only slightly, again, by neighboring Connecticut).

In broader perspective

The total number of federal tax returns filed by New York State residents fell from 10.2 million for 2020 to 9.8 million for 2021, a decrease of nearly 4 percent at a time when total income tax filings increased 1.1 percent in the U.S. as a whole.  New York’s decrease in federal tax filers was more than twice the state’s estimated 1.6 percent population loss between mid-2020 and mid-2021.

The reason for the difference: Census estimates represent a total headcount of all state residents including children, the elderly and other non-taxpayers. The higher rate of decrease in New York’s federal income tax filer count was concentrated among individuals and households earning less than $25,000—a category that includes a large number of part-time and underemployed workers who were slower to re-enter the labor market as pandemic restrictions were lifted. The majority of these filers owed no state income tax in 2021, while high earners generated a disproportionately large share—roughly 50 percent for the less than 1 percent earning more than $1 million. Thus, comparative trends in higher-income categories have the most significant implications for the stability of state finances.

What next?

While IRS state and substate tax data for 2022 won’t be available for another year, preliminary New York State income tax data indicate that the number of millionaire filers decreased in 2022, although the final total is “likely to increase as the department continues to review and process tax year 2022 returns.”

The preliminary version of the state data is not comparable to the IRS data because it includes both residents and non-residents of New York. Non-residents don’t pay New York tax on their capital gains, which make up more than one-third of income for the highest earners; thus, for purposes of evaluating the impact of state tax policy, the most relevant number remains the count of filers broken down by residency, which is due to be released in late August or September.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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