Federal income taxes have continued to be a much-discussed topic as we head into the final month leading up to the presidential election. The topic gained a great deal of attention when Republican presidential candidate Mitt Romney stated earlier this month that over 45% of Americans do not pay any federal income tax.
Despite the difficulty many have in understanding the Internal Revenue Service (IRS) tax code, there are ways that people in various stages of life and at various income levels can effectively pay no federal income tax.
Based on data from the Tax Policy Center, a group of tax and budgetary experts, following are the groups who do not pay federal income tax. Keep in mind that all these groups are adhering to the tax laws as they apply to each individual’s federal income tax circumstances.
Payroll Tax-Only Payers (28%)
Just over 28% of those who do not pay federal income tax to the IRS are employed either part or full time but they earn a very low amount of income. Their employers withhold from their paychecks monies for both Social Security and Medicare, but their incomes are low enough such that they do not have to pay any federal income tax.
Large retailers such as Wal-Mart are in the practice of hiring large numbers of employees part time, because they can pay two part-time workers less total compensation than one full-time employee since they do not have to provide the same level of benefits to the part-time employees. And it is estimated that over half of these part-time employees earn low enough income such that they qualify for the Earned Income Credit (EIC) from the IRS.
The EIC is designed to reduce the tax burden on low income tax filers and may even allow them to receive money back from the Internal Revenue Service.
Most income for the elderly—those over the age of 65—comes to them in the form of pension and Social Security income. If their income from pensions and any other sources is below a threshold–$10,950 for those filing as single, $20,150 for those married filing jointly, and $13,650 for those filing as head of household—then their income from Social Security is likewise not taxable for federal income tax purposes.
Approximately 7% of those who do not pay federal income tax to the IRS are under the age of 65 and simply do not earn enough income to owe taxes. This includes individuals often do not work and their only “income” is from participating in governmental programs to subsidize their income such as food stamps and for housing. They earn less than $9,500 for those filing as single, $19,090 for those married filing jointly, and less than $12,200 for those filing as head of household. It also includes many members of the military whose income is not taxable and students.
The final 1% is a mixture of others who have no reportable income, including those who are self employed and are not earning any income in the current year because of business losses or because their business is in a startup phase.
- Federal Income Tax Still Hot Topic in Presidential Campaign (taxlawhome.com)
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.