Subscribe

Millions don't pay federal income tax?

Estimates place the amount of American households that will not pay federal income tax at 45.3 percent. Read more to find out what that means.

  • close
    The Internal Revenue Service building at the Federal Triangle complex in Washington, Saturday, March 2, 2013.
    Manuel Balce Ceneta/AP/File
    View Caption
  • About video ads
    View Caption
of

The Tax Policy Center has updated its estimate of the percentage of households that will not pay federal income tax this year. We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent. But that doesn’t mean more Americans have moved off the tax rolls. Instead, the higher estimate reflects new and better estimates of the number of Americans who don’t file tax returns. Those additional non-payers were there all the time—we just failed to count them.

Estimating the number of people not paying income tax is hard. We know how many people file returns and whether those filers pay any tax—although it takes us a few years to get actual data from the IRS. But we don’t know how many people don’t file returns. The Joint Committee on Taxation (JCT), the Treasury, and TPC all work hard to estimate the number of non-filers and update our estimates as we learn more.

Our latest estimates rely on recent research by JCT that led committee staff to boost their estimates of non-filers and on recent IRS filing data showing more returns with no tax liability. As a result, we increased our estimate of the number of tax units—those who file plus those who don’t—by 7.5 million and trimmed our estimate of the number of people paying tax by 3.9 million. The bottom line: out of 171.3 million tax units this year, 77.5 million—or 45.3 percent—won’t pay income tax. In contrast, our last estimate had 66.2 million of 163.8 million tax units not paying tax this year.

Recommended: Fifteen best entry-level jobs of 2015

We still project that the percentage of non-payers will fall over time, though more slowly than we previously thought. We now estimate that 40 percent of tax units won’t pay tax in 2025, higher than our previous projection of about one-third.

There’s another wrinkle: Our estimates count non-filers as paying no income tax but that’s almost certainly not right. Some may have had taxes withheld during the year that they could get back if they filed returns—or maybe wouldn’t get back if they in fact owed tax. We assume that people who don’t file don’t owe tax but some surely do. We just don’t know.

And then there’s the philosophical question of what to call those who don’t owe tax but who don’t claim refunds of taxes withheld by employers. Are they taxpayers because the government keeps their money? Or are they non-payers because they don’t actually owe tax? We’re spared that choice since we can’t identify them. Even if we could, we can’t distinguish them from people who do owe tax but don’t file returns.

I must conclude with an important reminder: Just because people don’t pay federal income tax doesn’t mean they don’t pay any tax. In fact, nearly everyone pays something. Three-fifths of those who don’t owe income tax work and thus pay Social Security and Medicare payroll taxes. And almost everyone pays state and local sales taxes, excise taxes, or some other levy. Check out our whiteboard video that explains what’s really going on and why the number of people paying no federal income tax will fall.

The post New Estimates Of How Many Households Pay No Federal Income Tax appeared first on TaxVox.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on taxvox.taxpolicycenter.org.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK