Smart TaxesSmart Taxes

Who is off the taxpaying hook?

About 43 percent of Americans won't pay 2013 taxes. Here's why they're not filing.

By MSN Money producer Jan 23, 2014 4:42PM

By Kay Bell, Bankrate.com Bankrate.com


Do you have to file a tax return? Maybe not.


While the Internal Revenue Service gets around 140 million returns a year, millions of Americans are exempt from this annual duty.


Senior man writing check © Dennis Wise, Photodisc, Getty ImagesBefore you wish you were among that group, however, take a look at just who typically does not have to file a 1040. 


47 percent and falling 


During the 2012 presidential election, much attention was given to individuals who didn't file or pay taxes. That was when Republican nominee Mitt Romney cited data -- the now infamous 47 percent figure. 


That number came from a study by the Urban Institute and Brookings Institution's Tax Policy Center, or TPC, of 2009 IRS filing data. 


The Washington, D.C.-based policy group has been analyzing U.S. tax filing and paying for years and actually is seeing a drop in those who don't have to pay federal income taxes. For the 2013 tax year, TPC estimates that the number will be 43 percent. 


Why the decrease? TPC analysts cite two key reasons, both related to the economy:


  • First, the recession meant a lot of individuals didn't earn enough to file a return. 
  • Second, to help those struggling in the recession, the president proposed and Congress agreed to stimulus measures that reduced their taxes. 


With the expiration of the stimulus provisions and an improving economy, the TPC expects more people to join the income taxpaying ranks, estimating that by 2022 only 34 percent will be able to avoid paying taxes. 

Off the income tax hook


Still, a third of the country free from income tax obligations is a substantial number. 


It is, however, not necessarily a group to which most aspire. 


Of today's estimated 43 percent who don't pay taxes, many of them end up with no tax bill for two main reasons. 


In many cases, they receive tax benefits, such as the Earned Income Tax Credit and child-related tax breaks, that eliminate their tax obligations. 


Or they don't make enough money to require that they file. Remember, the IRS sets earnings thresholds based on age and filing status that determine who has to file. For 2013, the minimum income amounts that trigger federal filing are $10,000 for single individuals, $12,850 for heads of household and $20,000 for married couples filing a joint return. 


And around two-thirds of this group, or 29 percent, work and pay payroll taxes, says the TPC. These are the Social Security and Medicare taxes that come out of workers' paychecks and are matched by employers. This is 6.2 percent of earnings for Social Security and another 1.45 percent for Medicare. 


Older, poorer 


That leaves, according to TPC calculations, around 14 percent of Americans who pay no income or payroll taxes. 


Of that group, around 10 percent are older than 65 and earn too little to pay taxes. The income earnings thresholds for this age group are slightly higher: $11,500 for singles; $14,350 for heads of household; and $21,200 for married joint filers where one spouse is that age. 


Another 3 percent avoid income taxes because they basically are too poor. They earn less than $20,000 a year. 


1 percent remainder 


That leaves 1 percent of Americans who aren't old or poor and still don't owe Uncle Sam. 


Among this group are investors whose earnings are from tax-exempt holdings such as municipal bonds or who have offset their United States income taxes, thanks to taxes they paid on foreign income. 


Others in this fraction of nonpayers also might have zeroed out their tax bills because of substantial deductions, such as for large medical bills or generous gifts to charity. 


Essentially, the Internal Revenue Code is pretty comprehensive. So while we all dream of not owing any taxes, chances are good that we're going to pay the U.S. Treasury at least a little.


More from Bankrate.com:

VIDEO ON MSN MONEY

55Comments
Jan 23, 2014 5:54PM
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Just more reasons why the current tax code needs to be scraped and a equal tax system put in it's place.  Why should the federal government be allowed to treat people differently under the law?  What other basis besides income should the federal government be allowed to use as a basis of discrimination?  Should it be age, sex, race, national origin, marital status, sexual preference, education, physical ability, etc.?  Why shouldn't everyone US citizen pay for equally for the services provided by this great country?

Jan 23, 2014 7:17PM
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There is no greater role for a man to play than to assist in the government of a people, nor anyone lower than he who misuses that power. And America we have abuse at the highest level.
Jan 23, 2014 6:24PM
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 It's not tax it is democrat funding.
Jan 23, 2014 6:48PM
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"Owing" taxes, and "paying" taxes, are two distinctly different actions in some cases, which are not mentioned.  And, some of those who "owe" but DO NOT "pay" taxes, are quite wealthy (some of which are residing in Washington, D.C.)  We never hear just how much of those taxes are ever collected.
Jan 23, 2014 6:50PM
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wow.....that is absurd....... I pay almost 5 figures in taxes........  Single, no kids, no house guess I make a model tax payer....
Jan 23, 2014 8:07PM
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Anyone who is part of a voting bloc that consistently votes Democrat (e.g. poor people, Blacks, Latinos) will be off the hook.  Anyone part of a bloc that consistently votes Republican (e.g. faith based organisations, large corporations, conservative groups, white males) will pay higher taxes and are many, many times more likely to be audited.
Jan 23, 2014 6:02PM
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what about people that pay no tax or get a tax credit and have not paid a dime in  is that fair paid about 65.000 in income tax this year i know that is not fair i'am taking in the back side with a sand paper condom
Jan 24, 2014 1:21AM
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And yet, the government officials in this country of ours insists it doesn't have enough money.

 

Who mismanaged it? Why isn't anyone in jail? 

 

There's too many favors, too much convolution, too much finagling, and too much artificially propping things up so 10 people can stand on a platform designed to hold 5.

 

We are all created equal. We push for inequal rights in the name of equality (because hey, if we all have the perks, why not?) Laws designed to promote family and child rearing (read: future tax paying citizens) turn into debates over homosexual rights to the 'marriage penalty' heterosexuals enjoy. It's how toll booths meant to pay for the roads they're on turn into political slush funds for pet projects and the road may or may not have been paid for. We keep hearing how social security is going to fail, but constantly omit it's because we've been borrowing from the money pool to pay for medicare/medicaid since the 80s. Yep. Future generations are bound to finance the current generations every attempt at staving off death after a lifetime of vices. Education costs 1000% higher than decades past in order to finance new rec centers, dormatories, and 'amenities' financed via non-dischargable debt. 

 

Americans are taxed any time money changes hands or even when you change the money in your own hands. When you get the money. When you use the money. When you hold on to the damn money.

 

There were supposed to be checks and balances in government. Not a collusion of wealthy, dishonest people to pervert for personal gain disguised as trying to help somebody. You'll find no statesmen on Capital Hill. Instead, thank your local politician.

 

We are essentially screwed. Either we endure the pain of change willingly or we brace for it to happen all on it's own.

 

Thanks,

Concerned Citizen

 

PS. There's a garbage patch the size of Texas floating in the pacific.

Jan 24, 2014 3:58AM
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Just make it equal, corporations get no tax breaks, rich no tax breaks, poor no tax breaks. middle no tax breaks. lets see how fast we stock pile the cash here and also no more freebees to foreign country's. you want help sign these loan papers. have no cash deliver it in gold to the us mint at your expense. etc. etc. etc. lets take usa back from the thieves in Washington. coravette
Jan 24, 2014 12:01PM
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the best way around the tax is, doing some work on the side, off the grid and under the table. I'm not talking about major home renovations there's too much risk, just a few repairs here and there. they add up quick and the money is great for both sides.
Jan 24, 2014 6:51AM
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It has been said here the following:

"The poor and middle class should pay a greater percentage in taxes to the government than the rich people because the poor people make greater use of government services! "

Why? If I worked 40 hours a week, for say Wal-Mart, and Wal-Mart's employee compensation was not enough to take care of the basic human needs to live and work, why should I have to pay a greater percentage in taxes? Especially when Wal-Mart's profits are in the Billions each year, making the company more than able to pay me a "livable wage". Why not go after the companies that low-ball their workers making them need the government services in the first place? These companies receive profit subsidies in the form of the government services their employees find necessary due to low compensation?

It is a shame that the wealthiest country in the world, while companies are making record profits, companies have Trillions of dollars parked overseas to avoid paying taxes, taxes on the wealthy are at the lowest point in 30+ years, a person working 40 hours per week is not paid a livable wage. Which forces them to turn to government services.

Jan 24, 2014 5:57PM
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So on top of it  all I get to pay double medical insurance premiums along with income taxes so these folks can  get Medicaid  or subsidized medical insurance along with no income taxes. Thanks Barry for taking care of all these folks at my expense. We didn't realize we were considered rich until we found out that a 62 year old couple earning $65,000 will get a full boat $1607.00 a month medical insurance bill just to keep the coverage  we had which use to run us $836.00,
Jan 23, 2014 8:34PM
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According to this article, most of the 43% Mitt Romney call freeloaders, pay in 15.8% in federal payroll taxes each year, but pay no income tax. While Mitt Romney who made $25 million paid 13% in federal income tax and paid nothing to payroll taxes. Clearly the poor are paying a higher percentage of their income in federal taxes than the rich and the only reason the poor don't qualify to pay federal tax, is because the GOP cut the bottom tax rate by 1/3rd in 2001 from 15% to 10%. The only way to solve this madness is to have a minimum tax so everybody pays in for the services we all receive from our federal government, every body benefits from national defense, food safety, roads and bridges, environmental safety and even the safety net programs whose dollars end up back into the hands of merchants and stimulate economic growth.
Jan 24, 2014 9:39AM
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It's easy for the Republican supporters to blame all bad on Dems. The  truth ( not political bias ) is that under Clinton, jobs were plentiful, unemployment was down, and the national debt was shrinking. Bush came in and government spending went though the roof. Mainly because of an unnecessary war in Iraq. There were no Iraqis on any of the planes. And just as our intel said, no weapons of mass destruction. Cheneys office did however expose American operative Valarie Plame ( treason) after her husband reported, No Al Qaeda ties, no attempt to procure WMDs, and in the words of Condi Rice, no plausible threat to America. Bush said" we will find who outted her, and punish them" . Then he took another  vacation. The thing that is bothersome about the current administration is that they left affordable out of the ACA. That has and will continue to have a negative impact on the economy.
Jan 23, 2014 7:25PM
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The poor and middle class should pay a greater percentage in taxes to the government than the rich people because the poor people make greater use of government services! 
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