45% of Americans Pay No Federal Income Tax – Fiscal Policy

Max Smith, CFP®, CIMA® | Kent Forsey, CFP® Blog, Fiscal Policy, Taxes

Disparity of income has been a preponderate subject for politicians and activist groups for some time, yet in the end, it’s those that earn the higher incomes that pay for the majority of taxes.

An estimated 77.5 million Americans, identified as households, pay no federal income tax. The non-partisan, non-profit tax group known as The Tax Policy Center released income tax data it analyzed for 2015 and found that nearly half, about 45.3% of American households, paid no federal income tax in 2015. The Tax Policy Center estimates that the percentage of Americans that will not pay income tax for tax year 2016 will drop slightly to 44.5%.

Generous tax credits and low tax brackets for low-income earners allow minimal to no federal tax payments. The Tax Policy Center did find that these lower income households did pay their share of state, local, property, sales, and excise taxes.

Federal tax data for 2014 and 2015 showed the top 1% of taxpayers subject to a higher effective tax rate, averaging about 23%, seven times higher than taxpayers in the bottom 50%.

The ultra wealthy, also known as the top 1% of taxpayers, with annual incomes of about $2 million, pay about 44% of all of the federal income taxes in the U.S.

Tax season is not a very fun time for most of us.  There is lots of data to put together and many of us end up paying more than we expected, although, data shows almost half of our citizenry are not required to pay any taxes at all.  Maybe now is a good time for both groups to be grateful for what it really means – those that don’t have to pay taxes can be grateful for the tax breaks and credits that allow them to avoid paying in this year while those who do have to pay taxes, often more than they already paid, can be grateful they are able to receive the income which made taxation necessary.

Hillspring Financial

Max W. Smith, CFP®, CIMA® | Kent G. Forsey, CFP®