Why More Americans Will Pay Taxes This Year

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As the COVID-19 pandemic fades, more Americans are paying federal income taxes again.

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Roughly 40% of Americans — 72.5 million households — won’t pay any income tax this year, according to an analysis by the Tax Policy Center. Although this sounds like a lot to many people, it has actually been down sharply in recent years.

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For example, in 2020 – when the coronavirus was raging and millions were out of work – 59.3% of the population did not pay a dime in federal income taxes. Even in the years before the pandemic, the percentage of those who did not pay income tax was close to 42% or 43%.

Most of those who don’t pay federal income taxes will still pay payroll taxes that fund Social Security and Medicare. But not everyone.

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This year, 16.5% of households — or 30 million — will not pay federal taxes or payroll taxes. But this number has also fallen and has come down to less than 20% in 2020.

Most people who don’t pay federal income taxes are on the lower end of the pay scale. About 60% of those living tax-exempt earn less than $30,000 per year. An additional 28% make between $30,000 and about $60,000.

According to the Tax Policy Center:

“While some politicians imply that people are somehow cheating the system by not paying taxes, the reality is totally different. People generally don’t pay federal income tax, because they don’t make a lot of money.”

More Americans will pay taxes this year than in 2020, because the economy is in better shape today – at least for now. The recession in 2020 is over and this year more people are earning more money.

The Centre’s analysis also appears to expose another myth: that the rich use their means to avoid paying any taxes.

The Tax Policy Center says that just a “small fraction” of high-income earners — 0.6% — pay no federal income tax. With such high income earners taking in $190,000 or more, when it comes to earnings, they qualify to be in the top 20% of all households.

According to the Tax Policy Center, wealthy people who do not pay any federal income taxes, have a large amount of itemized deductions or can use business losses from a prior year to offset current income.

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