AP Photo/Nam Y. Huh
Some Americans don't owe taxes on their income because it is too low.
- The Urban-Brookings Tax Policy Center estimates that nearly 76 million Americans won't owe federal income tax on tax day 2020.
- Some Americans don't owe taxes on their income because it is too low; the deductions and credits available to them wipe out their tax liability.
- If you're under age 65 and earn less than the standard deduction - $12,200 for singles, $18,350 for single parents, and $24,400 for joint filers - you likely won't have to file a federal tax return for 2019, unless you want to claim refundable credits.
- If you made more than the standard deduction for your age and filing status, claimed unemployment income, or are self-employed and earned at least $400 during the year, you must file a tax return with the IRS.
- Many people who don't pay federal income tax do work and owe payroll taxes, which support Social Security, Medicare, and unemployment insurance.
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It was Benjamin Franklin who famously wrote in 1789, "In this world, nothing is certain except death and taxes."
While the first part remains true today (we have yet to crack the code on eternal life), taxes on income are not certain for every American.
According to the nonpartisan Urban-Brookings Tax Policy Center, nearly 76 million Americans, or about 44% of total tax units (one unit is equal to either a single filer or one married couple filing jointly) are expected to have a zero or negative income tax bill for the 2019 tax year. That's over 3 million more tax units than two years ago, an increase attributable to the Tax Cuts and Jobs Act.
"The large percentage of people who don't owe federal income tax is a feature, not a bug, of the revenue code," write the Tax Policy Center's Philip Stallworth and Daniel Berger. "By design, the federal income tax always has excluded a significant fraction of households through a combination of personal exemptions, the standard deduction, zero bracket amounts, and more recently, tax credits."
About 97.3 million Americans are expected to file a federal tax return for 2019, according to the Tax Policy Center. The deadline to file your taxes in 2020 is Wednesday, April 15.
How much do you have to make to file taxes?
Not "losing" a portion of your paycheck to taxes may sound nice to some, but it's not a luxury. Millions of Americans don't owe taxes on their income because they don't earn enough money.
As a benchmark, if you're under age 65 and earned less than the standard deduction - $12,200 for singles, $18,350 for single parents, and $24,400 for joint filers in 2019 - you won't have to file a federal tax return. These deductions are taken before taxable income is calculated and can wipe out your total tax liability if you didn't earn enough.
If you're over age 65 and filing single or head of household, the standard deductions increase to $13,850 and $20,000, respectively. If you or your spouse is over age 65 and you file jointly, the standard deduction is $25,700.
Those with a zero or negative tax bill aren't required to file, unless they want to claim refundable credits, such as the earned income tax credit (EITC) or the child tax credit (CTC), or had tax withheld by their employer throughout the year and want to get a refund.
If you made more than the standard deduction for your age and filing status, claimed unemployment income, or were self-employed and earned at least $400 during the year, you must file a tax return with the IRS.
How a negative tax bill could turn into a refund
Consider this example of a woman who doesn't owe federal income tax and will likely end up with a refund:
Amy is a single mother who, by the end of 2019, will have earned $20,000. The standard deduction of $18,350 for single parents reduces her taxable income to $1,650, which places her in the 10% tax bracket ($0 to $9,525). Her tax bill comes out to $165.
If she qualifies for the earned income tax credit (EITC), a subsidy for low-income working families, she can reduce her tax bill by up to $3,526, the maximum for a family with one child in the 2019 tax year. She may also claim the child tax credit (CTC), which allows her to apply a credit of up to $2,000 to her tax bill.
Amy will end up with a negative final tax bill, and since EITC and CTC are refundable, she'll receive the credits as cash.
But while Americans who earn too little don't pay income taxes, those who hold a job are still subject to payroll taxes, which support Social Security, Medicare, and unemployment insurance. According to Tax Policy Center data, 26.7 million Americans owed neither income nor payroll taxes for the 2018 tax year. However, some taxes are certain for everyone, regardless of income, including sales taxes, excise taxes, and property taxes.