45% Of Americans Pay No Federal Income Tax

More Than 77 Million American Households Won't Pay Federal Income Tax

45% Of Americans Pay No Federal Income Tax
April 12, 2016

As you’re struggling to fill out your tax return, and wondering where the money will come from to send to the Internal Revenue Service, ever wonder how many of your neighbors aren’t paying taxes? Would you believe nearly half? That’s right: nearly half of American households won’t pay any federal income tax for 2015 legally. And some of them will get a refund anyway!

As remarkable as it may sound, the Tax Policy Center concluded that an estimated 45.3% of Americans do not have any 2015 federal individual income taxes to pay at all — and some of them actually have a negative income tax rate, meaning they will receive benefits that are beyond their zero tax liability.

This is not an unusual situation, either. Information from the Tax Policy Center shows that the number of households that pay no federal income taxes has been rising steadily. In 2011, there were 74.8 million households that did not owe federal taxes, compared to 77.5 million in 2015. At least percentage-wise, the amount of non-federal-taxpaying households is decreasing, from 45.8% in 2011 to 45.3% today.

Out of 171.3 million households (or "tax units" in the dry phrasing of the Tax Policy Center), 143.4 million households filed taxes. Within that group, 93.8 million households owed taxes of at least $5 (taxes of $5 or less were considered the same as no taxes at all for analytical purposes).

The table projects results to 2025 assuming current tax law (an assumption that is almost guaranteed not to happen) and while both the number and percentage of non-taxpaying households is predicted to fall, it never goes below 74.1 million households and 40% respectively. Estimations for the 2015 tax year and beyond are provided by a Tax Policy Center simulation model.

This statistic may bring to mind rich people avoiding taxes through loopholes and other tax shenanigans, but it shouldn't. Of that 77.5 million, approximately half do not pay taxes because they have no taxable income at all, and the other half get enough tax breaks to compensate for their tax liability. Thanks to refundable credits like the Earned Income Tax Credit and components of the Child Tax Credit, it is possible to end up with a negative tax rate.

In reality, the average income tax bill per person is negative for the lower 40% of incomes, as it almost has to be for the above statistics to be possible. According to data from the Tax Policy Center, the average income tax bill per person is a negative $643 for the lower 20% of incomes and a negative $621 for the second lowest 20%. Combined, that means that the remaining 60% must pony up an extra 4% of the collective tax bill — in other words, 60% of America pays the entirety of the country’s federal income taxes plus another 4% of that bill that is redistributed to the lower 40% of taxpayers.

Meanwhile, the richest 20% of American households pay an average of $50,176 in taxes and account for 86.8% of the total federal tax bill. Households with the top 1% of income pay 43.6% of America's tax bill, and the 115,000 households that comprise the top 0.1% pay over 20% of the tax bill.

One can argue whether this is the right distribution of taxes from either an economic or a social justice standpoint — and in an election year that is going to happen ad nauseum — but there is no argument that the amount of households paying no federal taxes is fairly close to half. Given that many of those households are on the lower end of the economic spectrum, it is entirely possible that the number could increase under either Republican or Democratic administrations.

Photo ©iStockphoto.com/alfexe

  Conversation   |   13 Comments

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Steffanie | 04.13.16 @ 17:02
This household will be paying taxes this year. It seems kind of odd to me that the number is so high on the households that don't pay.
Carla | 04.13.16 @ 17:02
I think everyone should pay their fair share of taxes and if you dont pay in, you should not get any back.
Alec | 04.13.16 @ 17:03
I'm not entirely sure what the difference between state and federal taxes is, aside from the obvious state vs country, but this seems fairly appropriate based on how many people fall below the "average" which would be middle class. It seems like the wealth gap is steadily growing since the economy is practically stagnating, according to other articles I've read here, if I've understood them correctly.
irene | 04.13.16 @ 17:03
Wow at first I thought I'd like to be among that number but definitely not if it's because that have 0 income
Sarah | 04.13.16 @ 17:04
you know... this is not something I ever gave much thought to. it's interesting that the number is so high though. very interesting indeed.
STOKES | 04.13.16 @ 17:04
We could adjust our tax withholding to pay taxes, but I would rather loan the government money all year than owe them money at the end of the year.
Erin | 04.13.16 @ 17:04
This doesn't really surprise me. I think it would help to have the whole tax code simplified, but I don't see that occurring anytime soon. I also think the richest households, while paying a large average are not really paying all that much relevant to their income. In the end, the middle class, what's left of it, is stuck footing the majority of the bill.
trish | 04.13.16 @ 17:05
Not sure how someone that doesn't pay in gets a return while others pay in AND owe. Something doesn't seem right there
Chrisitna | 04.13.16 @ 17:06
The entire tax system needs an overhaul. This is the first year in a long time that I don't owe taxes.
Jonathan | 04.13.16 @ 17:06
Everyone pays one way or another, that's why we need the Fair Tax!
Jo Ann | 04.13.16 @ 17:07
Well if corporations would pay their fair share of taxes it would allow everyone to reduce their tax bill. Maybe a federal sales tax is in order versa income tax. that way everyone would pay based on their spending habits, not their income. Or possibly a combination of both.
Kamie | 04.13.16 @ 17:08
Those are high numbers on households that had to pay in, Sometimes I think it may be better to live on the poverty line, then you get get money back from what you put in. Never had to pay in taxes, and I really do not want to start.
Wanda Langley | 04.13.16 @ 17:15
It amazes me how much Money some of these People get back and never Pay in. That does not sound like it is right to me. I feel we all should Pay our Fair Share.
$commenter.renderDisplayableName() | 11.25.20 @ 03:04