NOTE: The March 1986 Current Population Survey (CPS) questionnaire was modified to allow the recording of higher earnings amounts than previous CPS questionnaires. This modification had an effect on some 1984-85 income comparisons. Consequently, all 1984-85 income comparisons shown in this report were computed from a file in which the March 1986 earnings values were recoded to the earnings limits in effect prior to March 1986. A more detailed description of the modification and its effect on the estimates shown in this report may be found in the section that discusses the revised earnings question.

This report is the sixth in a series presenting estimates of household after-tax income and taxes paid by households. Previous special studies released by the Census Bureau contained estimates of household after-tax income for 1974 and 1980 through 1984. Data from the 1983 Annual Housing Survey, the Income Survey Development Program, and the Internal Revenue Service were combined with the March 1986 Current Population Survey (CPS) data to derive the estimates shown in this report. The main purpose of this report is to provide a better measure of year-to-year changes in household purchasing power and of differences in purchasing power between subgroups of the population.

Four types of taxes were simulated and subsequently deducted from the total money income received by households in order to estimate after-tax income: Federal individual income taxes, State individual income taxes, FICA and Federal retirement payroll taxes, and property taxes on owner-occupied housing. A discussion of the important limitations of the simulation procedures and underreporting of income in the CPS is contained in the limitations section. A detailed description of the tax simulation methodology can be found in appendix A, along with comparisons of the results of the tax simulation with data from the Internal Revenue Service and other administrative sources.