The median QSBS exclusion is
Not millions. Not a billionaire loophole. Half of all QSBS claimants exclude less than this — a few thousand dollars of startup stock.
The data on Section 1202 tells a different story than the one you've been hearing.
See the evidence ↓You've probably heard that 94% of QSBS benefits go to millionaires. The Treasury data shows why that's misleading.
By number of claimants
By dollar amount excluded
74%
of QSBS claimants earn under $1 million
74% of dollars go to people who already earned over $1M before QSBS
20% goes to people earning under $1M whose one-time exit temporarily pushed them over
ITEP lumps both together to reach 94%. But the second group is the whole point of QSBS: people with modest incomes who experience a single liquidity event.
Source: U.S. Treasury OTA Working Paper 127, January 2025
$2,810
Median annual QSBS exclusion
Half of all claimants exclude less than this
75%
claim it exactly once in 11 years
Only 6% claim it five or more years
2.55%
of all capital gains in 2021
QSBS is a rounding error on total cap gains
Senior Engineer
A senior engineer at a 50-person startup exercises $40K in stock after 6 years.
First-time Founder
A first-time founder sells after 8 years for $2M. First liquidity event of their career.
Early Employee
Employee #12 exercises options worth $150K after the company is acquired. Five years of below-market salary.
Seed Investor
Puts $25K into a friend's company. 7 years later it's worth $200K.
We're talking about someone exercising a few thousand dollars of startup stock — not a billionaire tax dodge.
Source: U.S. Treasury OTA Working Paper 127, January 2025
See what your state actually takes from a qualified small business stock exit under Section 1202.
State tax on this exit in Alabama
$0
| State | Tax Rate | QSBS Status | Tax on Exit |
|---|---|---|---|
| Texas | 0% | No income tax | $0 |
| Florida | 0% | No income tax | $0 |
| Washington | 7% | conforms | $0 |
| California | 13.3% | decoupled | $0 |
| Oregon | 9.9% | pending | $0 |
| New York | 10.9% | pending | $0 |
Two peer-reviewed academic studies have measured QSBS effectiveness. Both say yes.
Investment in startup firms increased by approximately 12% after the 100% exclusion
Method: Within-firm variation comparing funding rounds before/after SBJA 2010
Chen & Farre-Mensa (2023/2025) ↗
QSBS-eligible industries experienced more firm births, more startup employment, and increased first-round VC
Method: Diff-in-diff comparing eligible vs ineligible industries after 2010 increase to 100%
States that decouple from QSBS lose the people and the revenue. Migration data doesn't lie.
33
Conform
6
Decoupled
2
Pending
2
Partial
8
No income tax
$102 billion
in AGI lost by California to outbound migration, 2020-2022
In 2022 alone, 24,670 high-earner households left, taking $16.1 billion in AGI.
Sources: CA Legislative Analyst's Office (2024), Center for Jobs (2024)
Migration data: IRS SOI Migration Data 2021-2022, Tax Foundation analysis Dec 2024
Nearly identical bills showed up in multiple states within months. Same data, same framing, same legislative session.
Dec 2024
DC passes B25-0900
Unanimous council vote to decouple from federal QSBS
Jan 2025
Oregon introduces SB 1507
QSBS decoupling bill using ITEP analysis and OCPP testimony
Jan 2025
Washington introduces SB 6229
Capital gains tax decoupling from QSBS exclusion
Feb 2025
New York includes decoupling in budget proposal
QSBS decoupling included as part of broader tax changes
Same playbook. Different states. Same session.
"Trump tax giveaway"
QSBS was signed by President Clinton in 1993, expanded to 100% exclusion by President Obama in 2010. Bipartisan policy, partisan framing.
Bundled revenue estimates
Revenue projections lump QSBS decoupling with unrelated tax changes, inflating the headline number.
If there are concerns about how QSBS is used at the top end, the response should be proportional — not a blunt instrument that hits everyone.
Decoupling doesn't solve a problem. It creates new ones.
It doesn't raise meaningful revenue (people move). It doesn't target abuse (it hits everyone equally). And it removes one of the few incentives that actually works to encourage startup formation and risk-taking.
Data without distribution is just noise. Get this in front of decision-makers.
Most legislators voting on QSBS decoupling haven't seen the Treasury data. Send it to them.
Find your legislatorPre-written message with the key facts. Copy and post.
New bills, new analysis, straight to your inbox.
U.S. Treasury OTA Working Paper 127 ↗
January 2025. Primary source for all distribution, claimant, and exclusion data (2012-2022).
Study finding ~12% increase in startup investment after 100% QSBS exclusion. Uses within-firm funding round variation.
Chen & Farre-Mensa (2023/2025) ↗
Diff-in-diff study finding more firm births, startup employment, and first-round VC in QSBS-eligible industries.
IRS SOI Migration Data, 2021-2022 ↗
Interstate migration of tax filers and AGI. See also: Tax Foundation analysis (Dec 2024) ↗
California Legislative Analyst's Office (2024) ↗
Analysis of high-earner outmigration and AGI losses from California, 2020-2022.
Source of the "94% goes to millionaires" claim. State-by-state revenue estimates.
State legislation