Who Pays No Income Tax?

By :: July 8th, 2009

Nearly half of all families and individuals will pay no income tax this year. But who are they? It turns out that whether a taxpayer is single or married, is elderly, or has children makes a big difference. Nearly 47 percent of single tax units will owe no tax, compared with about 40 percent of joint filers and over 70 percent of household heads. About 55 percent of the elderly and tax units with children will pay no tax. Two factors primarily explain the variation: differences in income and available tax preferences.

Income is an obvious driver—virtually no one with income under $10,000 pays tax after taking the standard deduction and personal exemptions. The percentage of non-taxpayers in each category falls as income rises and top-bracket taxpayers almost always pay something. Still, a small percentage of those making a million dollars or more a year pay no income tax.

Singles and household heads earn a lot less than joint filers: their average income is under $30,000 compared with nearly $75,000 for couples filing jointly and they are much more likely to avoid paying income tax. Overall, over three-fifths of units with income between $20,000 and $30,000 pay no tax, compared with just one-fifth of those with income between $50,000 and $75,000.

Filing status also matters because of differences in exclusions, deductions, and credits. Among those with income between $40,000 and $50,000, for example, nearly three-fourths of joint filers, two-thirds of households with children, and three-fifths of the elderly owe no tax, compared with less than half of household heads and less than a tenth of singles. The impact of refundable child and earned income credits and the exclusion of most Social Security benefits clearly make their mark.

43Comments

  1. Anonymous  ::  1:55 pm on July 8th, 2009:

    Very interesting numbers.
    Of course, if a full incidence analysis were possible, it would likely show that many people listed above as “paying no income tax” do indeed pay income tax indirectly, e.g., in the form of higher prices on the goods and services they buy and/or lower wages. How much of the benefit of the EITC actually goes to the intended recipients and how much goes to the employers of low-wage workers is an interesting question.

  2. Anonymous  ::  12:36 pm on July 9th, 2009:

    Your statement is mostly correct. You say people “do indeed pay income tax indirectly” and cite higher prices on goods. You cannot call that an “income tax”. Income tax is non-volountary, purchasing items is a choice one can make.

  3. Anonymous  ::  12:37 pm on July 9th, 2009:

    Mary – please spare us. Those of us who DO pay taxes have also experienced higher costs and lower wages, as well as the taxes (income, payroll, sales and property) to support those who do not. As well as the actual costs of keeping ourselves employed. Employers do not benefit from EITC – perhaps you don't know how this program operates.

  4. Anonymous  ::  1:40 pm on July 9th, 2009:

    For the politicians who continue to push higher taxes for productive people, the lesson is simple: If you rob Peter to pay Paul, you can count on the support of Paul. We are at the tipping point.

  5. Anonymous  ::  1:44 pm on July 9th, 2009:

    There is a difference between “owing” no tax and “paying” no tax. Income tax is already withheld, so most people will not owe additional tax. That is not the same as paying no tax.

  6. Anonymous  ::  2:24 pm on July 9th, 2009:

    The less fortunate get all the breaks! >:(

  7. Anonymous  ::  2:54 pm on July 9th, 2009:

    “There is a difference between “owing” no tax and “paying” no tax.” Very true – and this article states – “Nearly half of all families and individuals will pay no income tax this year.” Go to http://www.dinkytown.net/java/Tax1040.html and see how little most lower income people pay – then start plugging in 100K+ for income to see how skewed the tax code is against the better producers.
    Until EVERYONE who has income pays some tax (think flat tax) then the USA will continue to decline with socialistic and communistic entitlements. “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure.”

  8. Anonymous  ::  2:56 pm on July 9th, 2009:

    The 'less fortunate' get all the 'breaks'. Contradiction perhaps? Also, how likely are we to see a posting about the statistic that half of corporations pay ZER0 in taxes, regardless of the supposed tax rate, due to offshore sheltering and other accounting tricks? The answer — not very.

  9. Anonymous  ::  4:38 pm on July 9th, 2009:

    Sorry laneg, I was mocking rightwingers. :D

  10. Anonymous  ::  4:40 pm on July 9th, 2009:

    Ohh, now I can appreciate your comment. :)

  11. Anonymous  ::  5:10 pm on July 9th, 2009:

    One important thing to note is that the families with children who pay “no tax” provide a profound social benefit — they're the ones willing to shell out in time and cash to raise the next generation. (Workers don't just appear, you know).
    It is less useful to think of EITC and Child Tax Credit as bennies to the employers — if there's going to be an income tax, I am happy making life a little easier for those who are doing some good with it.

  12. Anonymous  ::  6:17 pm on July 9th, 2009:

    No corporation, in the U.S. pays a single dime in taxes, ever. They merely collect taxes for the government. Every penny of corporatate taxation is passed to the consumers of that corporations goods and services, in the form of higher prices or lowered dividends to stockholders. Individuals pay every penny.

  13. Anonymous  ::  8:18 pm on July 9th, 2009:

    The challenge of tax reform is to preserve the tax benefits for some of the people who pay nothing – or provide offsetting benefits to any direct consumption tax. Of course, smokers, drivers and drinkers pay some taxes – as are people who pay some type of tarrif.
    Anyway, if income and payroll taxes are dispensed with, the negative income tax effects of the current system, as well as a subsidy against any VAT tax, must be distributed in some fashion – possibly with a higher base Social Security benefit and having employers distribute the Child Tax Credit against an expanded Business Income Tax (paid on profits and wages and by all employers – including non-corporations).
    Since so many people don't have to pay, it is really nasty to make them file any type of paperwork when their employers are likely filling out paperwork as well anyway. Employers will fill out paperwork for a flat tax as well – so arguments that we are somehow burdening them by filling out much the same paperwork and distributing refundable credits in the same way they do now are not cogent.

  14. Anonymous  ::  8:06 am on July 13th, 2009:

    So, why do you suppose those who don't pay don't have to pay? Whenever I filled out my income tax the reason I got a refund was because I had deductions for a) charitable contributions, b) medical expenses and possibly c) interest on my mortgage. People who do end up paying tax may not a) donate to charity regularly, b) have a lot of medical expenses or c) own their own home. Two of these (maybe 3 if they don't purchase health insurance a deductible medical expense) are their own choice. Its not a corrupt system it is a system and some of us give our money to charity and purchase health insurance and homes. Others spend their money other ways and don't qualify for the same tax deductions-that's their choice. Some people choose to have children and therefore qualify for a tax deduction. Others choose not to. That's their choice. Some people choose not to get married-have a bunch of children and file separately just so they can qualify for the maximum deductions. That's their choice but I call that fraud. That is my opinion.

  15. Anonymous  ::  4:37 pm on July 13th, 2009:

    I consider myself a conservative. I think the poor should not be taxed and that the democratic leadership should pay their taxes. Some of the posts make it sound like conservatives don't care about the poor. Most conservatives I know help build houses for habitat for humanity, work in homeless shelters and food pantries, and give a lot of money to people in need. Most liberals I know want the government to take care of the poor so that they will have an excuse for not getting out in their communities and helping. I grew up in a poor family and those that looked down their noses at us were not conservatives but elitest liberals who considered themselves intellectuals and were only out to elevate themselves.

  16. Anonymous  ::  3:02 pm on July 14th, 2009:

    i just love paying taxes for everybody else who doesnt have to, the joys of being a small biz owner, we get screwed by the government and the non tax payers

  17. Anonymous  ::  11:16 pm on July 14th, 2009:

    We need a tax code that rewards achievement and encourages investment for a successful economy. The Obama administration needs to enact policies that bring tax rates in line with our global competitors, but need some encouragement! The Friends of the U.S. Chamber supports these efforts. Sign the economic and tax policy petition at http://www.friendsoftheuschamber.com/takeaction/index.cfm?ID=42

  18. Anonymous  ::  2:45 pm on July 15th, 2009:

    Whether as a small business owner you should be paying depends on whether you are paying taxes on your labor or the labor of your employees (regardless of how you disperse the cash). As long as the wage you pay does not fully distribute the contribution they make to the enterprise, it is absolutely appropriate for you to pay taxes to provide services for these employees. The reason workers seek employers to broker their services – often at a premium cost – is because the employers provide certain services, like marketing, insurance and tax collection.
    You don't think you are entitled to make more simply because of your good looks, do you?

  19. Anonymous  ::  2:48 pm on July 15th, 2009:

    Does that mean the Chamber is going to support a VAT? Most of our competitors have one – with an exemption for exported goods. They also provide public single payer health care. If the Chamber is serious about tax conformity with our competitors, it will support both propositions. Let us know if that is the case, for it would be news.

  20. Anonymous  ::  9:34 pm on September 30th, 2009:

    “Still, a small percentage of those making a million dollars or more a year pay no income tax.”
    I believe this is formulation is highly misleading. The implication is that there are people who earn over a million dollars for several years in a row and still pay no income taxes. I think that is inaccurate. This is looking at a single year, these people likely paid substantial taxes in other tax years. The same is true for many households. They may avoid income taxes for a period of time, but they are going to pay taxes.
    We as a country have a policy of giving tax breaks to people while they are raising children. We don't have to do that, but it does make some sense. And I say that as someone who does not, and will not, have children.

  21. Anonymous  ::  5:40 am on October 7th, 2009:

    actually regardless of how you choose to play with the syntax….owing and paying no tax are the same here. Ask any payroll clerk or your local tax accountant. So payroll deducts something big deal. These people are smart enough to file and get what they had deducted returned in what is cleverly called a refund. After you finish what ever form you use you discover whether you owe more, nothing or over paid. If you paid when you owed nothing or you had too much deducted…you get the magical check, From the rest of us that do pay. Payroll has no special insight to a family income they just apply the rules put forth by the IRS for payroll deductions based on information provided by the individual and the amount the employee is paid. My 16 year old had fed tax's deducted as well as SS. She will make nothing close to 10 grand..but her employer has no idea what other income she may have so the payroll department by law must deduct a certain amount of fed taxes. She will file a short form and get a check. She paid taxes but owned none so she gets a refund…THINK.

  22. Anonymous  ::  6:00 am on October 7th, 2009:

    You're confusing people but I agree in the end the corporations offset their transfer of wealth to the governments such as property taxes and corp income taxes by raising the prices of the widgets they make and sell. My personal favorite are the property taxes public schools pay and the property taxes government buildings pay. Cmon now we aren't that stupid. My schools property value gets jacked up by a government property appraisor so that their taxes go up so then my property's value gets jacked up by another government property appraiser so that I can pay more taxes so that they can pay their higher taxes to….themselves. The Sopranos couldn't come up with a better racket.

  23. Anonymous  ::  6:22 am on October 7th, 2009:

    millionaires paying no taxes is nonsense. The infamous so-called loopholes are not a prevalent as the detractors would have you believe. If they are paying absolutely no federal taxes they will get audited. The random audits as far as I know don't apply to the truly high income earners…they get special treatment with assigned IRS auditors. We are forcing the tax haven countries like Switzerland to turn over American citizen data and using a Caribbean tax haven today is like putting a spotlight on yourself. The whole rich guy's don't pay taxes is a myth. The super rich can play games by moving assets to lower income family members but it's a trick that normally attracts unwanted attention…Sure some pull fast ones but eventually they usually get nailed and pay far more than they would have. I love my rich neighbors…they pay big time. I resent the rich guy category getting increased every year so that what was once merely upper middle class is now taxed mercilessly as well. Married 45-50 year old college grads pulling down 200 to 300k combined is not rich. Rich is rich and we all know who they are not some family merely playing by the rules working middle management or pulling teeth or giving my kid a flu shot…soros is rich, the guy in an 11K sq foot house is rich. Not me.

  24. Anonymous  ::  6:42 pm on March 11th, 2010:

    Well, it is the small business that carries the burden and my business is a prime example. They say in Canada if you want to own a small business – buy a big business and run it for a year :o)

  25. Anonymous  ::  9:46 pm on March 11th, 2010:

    Of course, your comment all by itself is a mockery of liberals. Greed is supposed to mean “taking from others”, which all liberals do, but you've changed it to mean “keeping what you've earned”, so that even regular people who scrape to get by can feel guilty about it.

  26. Anonymous  ::  3:44 pm on May 14th, 2010:

    Does anyone have any estimates in government revenues if the 33% that pay payroll tax and no income tax did pay income tax?

  27. Anonymous  ::  5:00 am on May 25th, 2010:

    National Insurance in the United Kingdom and Social Security in the United States are forms of social welfare funded outside their national income tax systems, paid for through worker contributions, something labeled a stealth tax by critics.
    Merchant Account Services

  28. Anonymous  ::  12:38 pm on July 8th, 2010:

    Lets be honest shall we??? When it comes to federal expenditures, you will always find medicare and social security included in the figures. When it comes to income, you'll always find them excluded. No one seems to publish the total tax figures for various income levels, including local taxes. The question is not how much income taxes are paid by at a particular income level, but what is the total tax liability at a particular income level. Currently the government owes the social security trust fund just over 4 trillion dollars which has been barrowed primarily from the poor and middle class. That being the case, what is whole tax picture?

  29. Anonymous  ::  5:58 pm on August 5th, 2010:

    I think it's important to realize that this is the ESTIMATED number of people who would not owe taxes- that is, would receive a full refund- if they properly filled out and filed for a refund on their annual taxes. It is NOT the number of people who actually didn't pay taxes, that is a much, much lower number, and many people simply don't understand how to claim all their money back.
    So 1. the actual number of people receiving a full refund is much lower than 47%.
    2. Even people that receive a full refund still give the government the money initially (You can only receive a refund or EIC if you paid in) was paid, and the government earned and kept all interest on that money for up to 13 months.

  30. Anonymous  ::  6:09 pm on August 5th, 2010:

    Wow, you think health insurance is really a choice? This is why we need the health insurance act. For people who've had a serious illness and recovered, they can never- NEVER- get individual insurance again. Medicare doesn't cover those people, only if they have a permanent disability. Most states have no options for insurance for those people, those that do are usually very expensive (My state is 550$ p/m for someone under 40). If they work for a small wage, less than full time, or small businesses that don't provide insurance, then they are screwed. That's NOT a choice at all, and not one anyone could make.

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  37. melmel  ::  12:48 am on October 4th, 2012:

    as a disabled person on my third appeal for ssi with no income now that pa has quit their 200/month assistance. i agree with you totally…those rich people are RICH not you and i don’t think you should be paying lots in taxes…and to the comment above “Does anyone have any estimates in government revenues if the 33% that pay payroll tax and no income tax did pay income tax?” i’m sayin ya and if we did tax those people do we have any numbers on how much more in debt we’d get just because the government had more money to spend needlessly on……themselves??? definitely not. BUT we all know how it’d go….when the elected officials earn the most in the country they’re ruling then there’s nothing but corruption…they shouldn’t get an income for wanting to serve the public but we should take care of them with our taxes being spent on THEIR housing/food/basic needs etc…not the other way around…all you who are able to work shouldn’t be paying the government so they can indulge themselves and then say they are serving the country by lying to us about how much they are spending on these “programs” to help us all out…what programs?…uh giving us all 100.00 to go out and spend at the mall when we are at war and had just been attacked? even if we hadn’t been at war 100 isn’t anything compared to 30,000/month salary the president gets and some members of congress get even more…ridiculousness especially when our college professors only get 7,000/ month that’s horrible cuz those professors do more actual work than most members of the government not to mention other way underpaid professions (housewives/mothers/stay at home fathers), something radical needs done and soon…our great worldwide reputation is starting to drop because other countries are starting to realize “what concern” our leaders (or candidates) are having over what is happening in our country…but how is another one of “them” going to fix it when there are no regulations on our government/or their earnings??…the son who goes out and fights for the “rights” we have in our country should be paid more than a government official. they just print out money backed by nothing and think the rest of the world isn’t going to care or realize it? and then where does that leave the rest of….everyone INCLUDING the politicians? cuz it will be total chaos unless someone/some group/all humans start taking some responsibility and says hey it’s messed up but…and tries SOMETHNG different what idk but two heads is better than one and 7 billion would mean something better would come out of it…the current system obviously isn’t working and it’s no one person’s fault so we need to just learn from our mistakes and move on, onto something hopefully better but at least we’d be trying…if not history will only repeat itself unless we just go completely extinct by overpopulation which is the definite course we are on right now.

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