Claim vs. Reality
The "94% Goes to Millionaires" Claim
You've probably heard that 94% of QSBS benefits go to millionaires. That number comes from ITEP (Institute on Taxation and Economic Policy). The U.S. Treasury data tells a very different story.
Who claims QSBS?
By number of unique claimants (average income excluding QSBS gains)
Income measured as average Total Positive Income (TPI), excluding QSBS gains. Source: Treasury OTA WP-127, Figure 4.
Count the people, not just the dollars:
74%
of QSBS claimants earn under $1 million
(by average income, excluding QSBS gains)
The single largest group (35%) earns $100K-$400K. These are founders and early employees, not millionaires.
Under $100K
20%
of claimants
2%
of dollars
$100K-$400K
35%
of claimants
11%
of dollars
$400K-$1M
19%
of claimants
12%
of dollars
Over $1M
26%
of claimants
75%
of dollars
How ITEP gets to 94%
ITEP claims: "94% of QSBS exclusions were claimed by people with more than $1 million of annual income."
That's a dollar-weighted stat, not a count of people. Here's how they construct it:
74% of dollars go to people who already earned over $1M before counting QSBS gains
20% of dollars go to people earning under $1M normally, whose one-time startup exit temporarily pushed them over
ITEP lumps both groups to claim 94% "goes to millionaires."
These two groups are the incentive working as designed.
The 74% are investors who funded early-stage companies. The 20% are founders and employees who built them. QSBS connects capital to builders. Both sides show up in the "94%" because both sides took the risk the policy was designed to reward.
Source: U.S. Treasury OTA Working Paper 127, January 2025
How Treasury actually measures income (and why it matters)
Treasury's Working Paper 127 classifies QSBS claimants using Total Positive Income (TPI), the sum of positive income sources on a tax return. Critically, QSBS gains that are excluded from income are also excluded from TPI. This is a deliberate methodological choice: Treasury measures a claimant's regular economic income, not a one-time liquidity event.
Treasury also uses a 3-year average TPI (the current year plus the prior two years) to classify claimants, smoothing out year-to-year volatility. For unique claimant counts, they average TPI over the full 11-year sample period (2012-2022). This methodology is designed to capture a person's typical income level.
Example: A founder earning $150K/year sells their company after 8 years for $2M. By Treasury's methodology (which excludes QSBS gains from income), they're classified in the $100K-$400K income bracket. Not a millionaire. ITEP adds the gain back to reach "94%," reclassifying this person as a millionaire based on a single liquidity event.
ITEP's approach (adding the excluded QSBS gain back into income) directly undoes Treasury's deliberate choice. The result: people with normal incomes who had one successful exit get lumped in with actual high-income earners, inflating the "millionaire" count.
Methodology: Treasury OTA WP-127, Section III ("Data and Sample Construction")