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45% of tax filers will owe nothing in federal income taxes this year

It's always a little surprising. In good times and bad, at least 75 million US households have ended up owing nothing...

Posted: May 22, 2018 1:46 PM
Updated: May 22, 2018 1:46 PM

It's always a little surprising. In good times and bad, at least 75 million US households have ended up owing nothing in federal income taxes in recent years.

They're not dodging their tax obligations. It's just the way the US tax code works.

This year, an estimated 45% of tax filers - or just under 79 million households - are likely to have zero federal income tax liability, according to the Tax Policy Center.

If the new tax law hadn't gone into effect, the percent would have been closer to 43%. Put another way, the law added another 2.3 million households to the rolls of non-payers.

Both figures, however, come in below the 50% of non-payers recorded in 2009.

"[That] was the peak both because of the effects of the recession on employment and incomes, but also partly a result of temporary tax policies like the Making Work Pay tax credit that further reduced income tax liabilities," said Joe Rosenberg, senior research associate at the Tax Policy Center.

Looking ahead, TPC estimates between 44% and 45% of households - or roughly 80 million - will pay no federal income tax for the next several years.

Getting to zero on your 1040

The ranks of non-payers are dominated by low- and middle-income households for several reasons.

The tax code is progressive so those who make very little don't end up owing tax.

Related: We asked how Trump's tax cuts were affecting CNNMoney readers. Hundreds responded.

Others, meanwhile, don't make a lot and can eliminate their federal income taxes through the use of the (now nearly doubled) standard deduction and some key credits such as the earned income tax credit and the child tax credit, which offset your tax bill dollar-for-dollar.

And lower income retirees who live primarily off Social Security don't pay taxes on their benefits.

But there are non-payers in the upper-income ranks too. TPC estimates this year about 7% of filers with total incomes between $86,000 and $150,000, and about 1% of filers making more than that won't owe anything.

They may whittle their tax bill to zero by taking a lot in itemized deductions, even though those options are narrowed under the new law.

Very high income non-payers may get lot of income from tax-exempt investments or carry a lot of losses from prior years if they're involved in a business or partnership. Such losses can offset your current taxes.

The payroll tax tab

The majority of tax filers who don't pay federal income tax still owe payroll taxes, however.

For instance, only about 12% of those in the lowest income group (making less than $25,000 all in) will end up owing income taxes this year, but 58% will owe payroll taxes, TPC estimates. The 42% in the group who don't end up owing payroll taxes typically don't earn a wage or are retired.

Related: Why the new tax law could make your state tax bill go up

Individuals with jobs will pay 6.2% of wage and salary income up to $128,700 into Social Security this year. And they will pay 1.45% of all their earned income for Medicare. Their employers will match those amounts, but economists say the employer payroll tax burden is ultimately borne by the worker, too, through lower wages.

All in, TPC estimates three-quarters of all filers will pay payroll taxes this year. And many who end up owing both income and payroll taxes will end up paying more in payroll taxes.

Mississippi Coronavirus Cases

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Reported Deaths: 693
CountyConfirmedDeaths
Hinds92024
Lauderdale69957
Madison68721
Scott62310
Neshoba56534
Jones52519
Forrest51137
DeSoto4936
Leake39512
Rankin3736
Holmes37324
Jackson30013
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Attala27715
Monroe25324
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Lincoln25022
Newton2504
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Lamar2275
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Jasper1483
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Clarke13517
Smith13311
Kemper13110
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Lafayette1254
Lee1175
Carroll11410
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Marion1129
Winston1051
Clay1043
Lawrence991
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Hancock8711
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Wilkinson859
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Grenada823
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Tate691
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Amite561
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Tunica523
Walthall510
Perry492
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Jefferson400
Choctaw352
Stone300
Pontotoc283
Franklin272
Tishomingo260
Quitman250
Tallahatchie251
George201
Benton140
Alcorn141
Greene111
Sharkey70
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 16310

Reported Deaths: 590
CountyConfirmedDeaths
Mobile2085112
Jefferson167397
Montgomery144634
Marshall6609
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Lee52632
Franklin4986
Shelby47019
Tallapoosa41063
Butler39113
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Madison3154
Elmore3007
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Walker2821
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Etowah24011
Dallas2323
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Lowndes21610
Morgan2111
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Houston1854
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Pike1730
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Marengo1506
Choctaw1487
Russell1480
Lauderdale1452
Hale1416
Wilcox1327
Barbour1301
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Randolph1247
Marion11711
St. Clair1081
Pickens964
Dale960
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Chilton931
Greene914
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Winston770
Covington751
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Washington656
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Lawrence460
Geneva400
Perry360
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Coosa341
Monroe342
Cherokee332
Clay272
Lamar210
Cleburne131
Fayette130
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