1. Introduction – What is Publication 5398?
IRS Publication 5398, officially titled “Adjusted Gross Income Percentiles by State” (Catalog Number 74021P), is an informational document produced by the Internal Revenue Service Statistics of Income (SOI) Division. Unlike step-by-step tax instructions that show you how to claim a deduction or credit, this publication provides comprehensive statistical data reflecting the economic landscape of American taxpayers across all 50 states and the District of Columbia.
Official records from the IRS repository show that Publication 5398 was formally cataloged with a baseline revision date of March 2020 (posted March 4, 2020). Through late 2026, it remains the standard reference framework used by the Statistics of Income Division to present individual income percentiles, state-by-state earnings distributions, and cumulative tax contributions based on filed individual returns.
The primary purpose of Publication 5398 is transparency and economic insight. It takes millions of processed individual tax returns and organizes them into readable percentile brackets, showing where households fall on the income ladder relative to their state peers.
2. Who Should Read This Publication
Publication 5398 is not a required filing manual for ordinary taxpayers during tax season. However, it provides valuable insights for several key audiences seeking objective financial data.
- Individual Taxpayers: Anyone curious to know how their Adjusted Gross Income (AGI) compares to other taxpayers living in the same state.
- Financial Planners and Advisors: Professionals who want reliable geographic data to benchmark client wealth, retirement readiness, and regional living standards.
- Economists and Policy Analysts: Researchers studying income inequality, state tax capacity, and regional economic disparities.
- Business Owners and Relocating Workers: Individuals and employers evaluating regional salary expectations and living costs across state lines.
3. Key Topics Covered
The publication aggregates data from Form 1040 filings to give a transparent view of American earnings. It focuses on how wealth and annual income differ across geographic boundaries.
- State-by-State Percentile Thresholds: Specific income floors required to rank in the top 1%, 5%, 10%, 25%, 50%, or bottom 50% for each state.
- Income Composition: Detailed breakdowns of where income originates, including salaries, capital gains, business profits, and retirement distributions.
- Tax Liability Distribution: The percentage of total state and federal taxes paid by each income tier.
- Average and Median AGI: Clear measures showing the middle point and mathematical average of earnings within specific jurisdictions.
4. Detailed Breakdown of Main Concepts
To interpret Publication 5398 effectively, taxpayers must understand several core accounting and statistical concepts used throughout the tables.
Adjusted Gross Income (AGI)
Adjusted Gross Income is the foundational metric of the publication. It represents your total gross income from all sources—such as wages, dividends, capital gains, and business profits—minus allowable “above-the-line” deductions like student loan interest or IRA contributions. AGI serves as the starting figure for determining your final taxable income.
Percentile Distribution
A percentile indicates the percentage of tax filers who earn less than a specific threshold. For example, if you are in the 75th percentile in your state, your AGI is higher than 75% of the filers in that state. Publication 5398 establishes brackets starting from the bottom 50% all the way up to the top 1%.
Income Sources Breakdown
The publication categorizes earnings into four distinct buckets to show how different income tiers make their money:
| Income Category | Components Included | Typical Distribution Pattern |
|---|---|---|
| Salaries and Wages | W-2 wages, tips, bonuses, and standard compensation | Dominates lower and middle percentiles |
| Capital Income | Taxable interest, ordinary dividends, and net capital gains | Concentrated heavily in top 5% and top 1% |
| Business Income | Sole proprietorships, partnerships, and S-corporations | Prevalent among upper-middle and top earners |
| Retirement Income | Taxable pensions, annuities, and IRA distributions | Distributed across middle-income retirees |
5. Practical Examples or Scenarios
Scenario 1: Evaluating a Career Relocation
Sarah is a project manager earning an AGI of $135,000 in Ohio, placing her comfortably within the top 15% of tax filers in her state. She receives a job offer in Massachusetts for $155,000. By consulting the state percentile data in Publication 5398, she discovers that $155,000 occupies a lower percentile ranking in Massachusetts due to higher baseline wages, helping her negotiate a higher cost-of-living adjustment.
Scenario 2: Assessing Retirement Savings Benchmarks
Marcus and Elena are planning their retirement in Florida and want to know where their projected pension and investment withdrawal income of $90,000 will place them. Looking at Florida’s AGI percentiles, they find their household will remain above the median filer threshold, giving them confidence in their long-term budgeting plan.
6. How This Publication Relates to Specific Forms
Publication 5398 is directly generated from the data submitted on standard individual income tax forms. Understanding these connections helps you locate where your own numbers fit into the national statistics.
- Form 1040 (U.S. Individual Income Tax Return): Line 11 displays your Adjusted Gross Income, which is the exact figure the IRS uses to place returns into Publication 5398’s percentiles.
- Schedule 1 (Additional Income and Adjustments to Income): Determines the above-the-line subtractions that convert gross income into AGI.
- Form W-2 (Wage and Tax Statement): Provides the wage data that represents the largest overall share of income in the publication.
- Schedule D (Capital Gains and Losses): Supplies the investment earnings that feature prominently in the top percentiles.
7. Common Misunderstandings Clarified
Many taxpayers encounter Publication 5398 and misinterpret its legal standing or contents. Here are the most common misunderstandings explained simply.
Misunderstanding 1: Publication 5398 is a form you must submit.
This publication is purely a statistical research document. There is nothing to fill out, sign, or submit to the IRS.
Misunderstanding 2: AGI thresholds are uniform across the country.
Income distributions vary significantly by location. Earning $350,000 might qualify you for the top 1% in states with lower median incomes, but the same earnings may only place you in the top 5% in high-income states.
Misunderstanding 3: AGI represents your take-home pay.
AGI does not reflect what actually lands in your bank account. It does not account for payroll withholdings, state income taxes, or below-the-line deductions like the standard deduction or itemized deductions.
8. Why This Publication Matters for Taxpayers
While Publication 5398 does not alter your tax bill, it serves as an authoritative source of economic truth. It removes guesswork about what constitutes a high, middle, or low income in any given state.
Furthermore, this data forms the factual basis for legislative debates regarding tax policy, standard deduction adjustments, and targeted tax credits. When federal or state governments propose changes to income tax brackets, they rely on the Statistics of Income datasets outlined in Publication 5398.
9. Frequently Asked Questions
Where can I find my AGI to compare it to Publication 5398?
You can find your Adjusted Gross Income directly on your federal Form 1040. For recent tax years, it is listed on Line 11 of the form.
Does Publication 5398 include taxpayers who did not file a return?
No. Publication 5398 only tabulates information from individuals who filed a federal Form 1040 return. Individuals who earned below the gross income filing threshold and did not submit a return are excluded from the dataset.
How often does the IRS update these state percentile statistics?
The Statistics of Income Division releases individual tax return statistics annually through dedicated data releases and bulletin articles, maintaining the formal catalog reference established under Publication 5398.
10. Conclusion
IRS Publication 5398 provides a fascinating, data-driven window into the economic realities of American households. By organizing millions of tax returns into clear percentiles by state, it enables taxpayers, researchers, and professionals to see beyond national averages and understand regional wealth distributions.
To see where you stand, look up your Adjusted Gross Income on Line 11 of your most recent Form 1040 and compare it against your state’s percentile thresholds. Reviewing this data offers clear perspective on your earnings, financial goals, and place within your local economy.
