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

Data is updated nightly.

Cases: 149940

Reported Deaths: 3779
CountyCasesDeaths
DeSoto9953104
Hinds9892198
Harrison7045110
Jackson6270119
Rankin5462102
Lee501095
Madison4734106
Forrest380586
Jones354888
Lauderdale3425145
Lafayette321549
Washington3161107
Lamar289250
Oktibbeha244362
Bolivar240984
Lowndes234164
Panola219850
Neshoba2196118
Marshall213850
Leflore204790
Pontotoc199228
Monroe197377
Sunflower191655
Lincoln188765
Warren175357
Tate168051
Union166025
Copiah163040
Pike161658
Yazoo154239
Scott152129
Itawamba151534
Pearl River150867
Coahoma150143
Alcorn149628
Simpson146753
Prentiss144230
Adams141150
Grenada140645
Leake133543
Holmes129961
George124524
Tippah124530
Covington122238
Winston121624
Hancock120239
Wayne117223
Marion115846
Attala112234
Tishomingo108942
Chickasaw107132
Newton104229
Tallahatchie96827
Clay90327
Clarke89353
Jasper82022
Walthall76328
Stone76114
Calhoun73913
Montgomery73625
Carroll72115
Lawrence70814
Noxubee70617
Yalobusha70627
Smith70516
Perry66126
Tunica60619
Greene60022
Claiborne58316
Jefferson Davis56517
Amite53114
Humphreys53119
Benton49117
Quitman4897
Webster43414
Kemper42518
Wilkinson39422
Jefferson34811
Franklin3365
Choctaw3237
Sharkey30917
Issaquena1144
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Alabama Coronavirus Cases

Cases: 242874

Reported Deaths: 3572
CountyCasesDeaths
Jefferson31944500
Mobile19687361
Madison13065148
Tuscaloosa12983154
Montgomery12286236
Shelby1020377
Baldwin860398
Lee773566
Morgan653850
Calhoun6240119
Marshall621355
Etowah621066
Houston523038
DeKalb481336
Cullman435442
Limestone420645
St. Clair415855
Elmore404564
Lauderdale400454
Walker3634111
Talladega349054
Jackson313423
Colbert309342
Blount288840
Autauga271642
Franklin251033
Coffee242615
Dale231854
Dallas225932
Chilton221938
Russell22143
Covington218534
Escambia197931
Chambers176550
Tallapoosa175791
Pike158314
Clarke158019
Marion137936
Winston132323
Lawrence127336
Pickens122318
Geneva12138
Marengo121024
Bibb117317
Barbour117110
Butler115341
Randolph102021
Cherokee101524
Hale96131
Clay91124
Washington90919
Fayette89816
Henry8526
Lowndes79529
Monroe78711
Cleburne77114
Macon73122
Crenshaw71130
Bullock69419
Conecuh68414
Perry6846
Lamar6718
Wilcox63218
Sumter57722
Greene42418
Choctaw42113
Coosa3414
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