How 51% of Americans Don't Pay Income Taxes? | Nationwide Tax Consulting

There are no doubts half of the Americans don't pay income taxes and according to a survey, 46% of households either will pay no federal income tax or will receive more from the Internal Revenue Service of the United States of America than they pay in. TPC recently released a new study that examines why these people end up paying no federal income tax.

The number one reason should come as no surprise. It's because they have low incomes. As Nationwide Tax Consulting notes:

  • A couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax exempts subsistence levels of income from tax.

Low incomes (or, if you prefer, the standard deduction and personal exemptions) account for fully half of the people who pay no federal income tax.

The second reason is that for many senior citizens, Social Security benefits are exempt from federal income taxes. That accounts for about 22% of the people who pay no federal income tax.

The third reason is that America uses the tax code to provide benefits to low-income families, particularly those with children. Taken together, the Earned Income Tax Credit, the child credit, and the childcare credit account for about 15% of the people who pay no federal income tax.

Taken together, those three factors — incomes that fall below the standard deduction and personal exemptions; the exemption for most Social Security benefits; and tax benefits aimed at low-income families and children — account for almost 90% of the Americans who pay no federal income tax.

The real fact — about half of Americans do not pay federal income taxes – often gets transmogrified in public discourse into the decidedly untrue claim that half of Americans pay no taxes, added Nationwide Tax Consulting. That simply isn't so. There are many other taxes in our fair land, including FICA payroll taxes, excise taxes, sales taxes, state income taxes, and property taxes. Most people who don't pay federal income taxes still encounter some of these other taxes.

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