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Who Doesn’t Owe Federal Income Tax — In One Graph

Given all the talk about who does or doesn’t pay federal income taxes and what this means for tax policy, here are a few basic facts.

  • The vast majority (83 percent) of households who owe no federal income taxes are either working households that pay payroll taxes (61 percent) or elderly (22 percent).

    To make those people pay federal income taxes, you’d have to take steps that would make the tax code less fair and sensible.  For example, it would require steps like cutting the Earned Income Tax Credit (EITC) or the Child Tax Credit, which would reduce work incentives and increase child poverty and welfare use; lowering the standard deduction or personal exemption, which could tax many low-income working families into (or deeper into) poverty; or taxing limited-income elderly people on their Social Security benefits.

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  • The remaining 17 percent of those who don’t pay federal income taxes are mostly those who are not working due to illness or disability, or are in school.

    Analyzing data from the Census Bureau’s Current Population Survey and estimates from the Urban-Brookings Tax Policy Center, we found that this group includes about 5 million households in which the head of household has an illness or disability and about 2 million households in which the head of household is in school.

    These two groups make up 7 percent and 3 percent of all households that didn’t pay federal income tax in 2011, respectively.  The remaining households include early retirees and those who can’t find work, which has been an especially difficult challenge since the onset of the Great Recession.  (For household heads who fall into more than one category, we assigned them to a single category in the order in which we’ve listed them in this post.  This means, for example, that a student working part-time would be included in the 61 percent of households that pay payroll taxes.)