Here's what the average American pays in taxes

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Taxes are a hot-button issue in the 2016 presidential election. Both presidential candidates have wildly different ideas about the changes that need to be made, and we've heard several contradictory claims about who's paying too much or not enough. To add some factual numbers to the conversation, here's what the average American pays in taxes, as well as the effective tax rates of average taxpayers, grouped by income level.

The short answer

The short answer is that the average American tax return resulted in a tax bill of $9,118. During the most recent year for which we have complete data (2014), there were about 148.6 million tax returns filed, resulting in approximately $1.355 trillion in tax liability, after applying credits. Dividing the two numbers gives us the average.

However, the averages don't tell the whole story, so let's dig a little deeper.

35% of Americans don't have to pay taxes

Of the 148.6 million tax returns filed, nearly 36 million of them had no taxable income whatsoever. Another 16.1 million had taxable income, but didn't end up owing any income tax due to credits, deductions, and other adjustments. For example, when I was in college, I worked and had substantial income every year, however the tax credits for tuition resulted in no federal tax liability for those years, so I would have been included in this group.

Income Range

Returns With Income Tax Liability

$0 to $30,000

33.6%

$30,000 to $75,000

83.5%

$75,000 to $200,000

98.8%

$200,000 and above

99.7%

Total

65%

Data source: IRS Statistics on Income, 2014.

In all, our $1.355 trillion U.S. federal income tax total was paid by 96.5 million taxpayers. Excluding the returns that didn't result in any tax being owed, the average tax paid in 2014 was $14,040. As you can see from the chart above, the overwhelming majority of returns with no income tax liability are in the lower income brackets, as you may expect. All but a small minority of taxpayers with AGI above $75,000 pay federal income taxes.

The average tax return shows adjusted gross income of $65,751, and the average taxable return has AGI of $94,284. This makes the overall effective federal tax rate 13.9%, and translates to a rate of 14.9% among those who paid taxes.

Average federal income tax and effective tax rate by income

Here's where it starts to get interesting. During this election cycle, we've been hearing a lot of talk about the American tax system, particularly that those at the top aren't paying their fair share. For example, Warren Buffett has claimed to pay a lower effective tax rate than his secretary.

In the interest of showing you the facts, here's a complete breakdown of the average income tax paid by income level, and the effective tax rate each number corresponds to. For this analysis, I've excluded returns with no adjusted gross income, as their effective tax rate, by definition, is zero. Returns with adjusted gross income, but no income tax liability, are included.

Income Range (AGI)

Average Tax Liability

Effective Tax Rate (% of AGI)

$1 to $25,000

$208

1.7%

$25,000 to $50,000

$1,871

5.2%

$50,000 to $100,000

$6,251

8.7%

$100,000 to $200,000

$16,977

12.6%

$200,000 to $500,000

$55,536

19.5%

$500,000 to $1 million

$173,678

25.8%

$1 million to $10 million

$632,146

29%

$10 million and above

$7,884,775

26.1%

Overall average

$9,118

13.9%

Data source: IRS Statistics of Income, 2014. Effective tax rates are calculated using the average AGI for each income group.

So, Americans in the higher income brackets definitely pay a higher effective tax rate than middle-class and low-income Americans. It is interesting, however, that those in the $10 million and higher income bracket actually pay a lower effective rate than the group before it.

Also, remember that these are averages. Some taxpayers within each range pay a higher effective tax rate, while some pay much less. In fact, Warren Buffett (who is in the $10 million and above group) paid an effective tax rate of just 16% last year, and is a strong advocate of setting a minimum effective rate of 30% for the richest taxpayers, a principal which has become known as the "Buffett rule."

What to expect in future years

Beyond the 2016 tax year, the data on the average American tax liability is likely to change significantly. If Donald Trump gets elected, all of the effective tax rates listed in the chart, as well as the overall average taxes paid, are likely to drop. On the other hand, if Hillary Clinton wins, the top few effective tax rates could jump dramatically, bringing the overall average up with it.

11 PHOTOS
10 things we've all said while filing our taxes
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10 things we've all said while filing our taxes

"It's only January, I have plenty of time!"
You're relaxed, you're casual, what even are taxes anyway? You don't care! It's so far away that filing taxes isn't even remotely on your radar, to be honest.

Photo credit: Getty

"The imminent act of filing is upon me and I literally have nothing ready..."
Tax season is now approaching and that creeping anxiety about getting everything done on time is starting to set in. It's essentially biting at your heels and you know you have to get moving.

Photo credit: Getty

No words. Just emotional paralysis.
You're screwed. You need to start doing your paperwork but you physically do not know where to even begin. It's time. It's happening.

Photo credit: Getty

"I HAVE A MILLION THINGS I NEED TO DO, WHY ARE THERE SO MANY PAPERS AND QUESTIONS, SOMEBODY HELP ME!"
That anxiety you felt creeping in earlier? Now it's full-fledged onset. This stage is often accompanied by screaming out loud, pulling hair, crying, etc.

Photo credit: Getty

"Wait, did I get all of my papers in? Did I check that one box correctly? Does it look like I'm trying to evade some of these taxes? What if I go to jail? Can I go to jail for that? WHO WILL FEED MY DOG WHEN I AM IN JAIL?!"

It's like handing in an exam in school and wishing you could grab it back and double check your answers one more time.

Who was that celebrity you heard about that went to jail for tax evasion? Because now you're convinced that's totally going to be you.

Spoiler alert: as long as you did everything to the best of your knowledge and ability, you probably won't go to jail. And even if you do, you'll find someone to walk your dog.

Photo credit: Getty

"I got this, I'm almost done, a few more papers and I'm in the clear. I just have to pound through the rest of it. Go me!"

"Go you" is right! Now you're on cruise control and you're on track to get everything done well and on time. You're unstoppable in the delight of the world that is tax filing.

Photo credit: Getty

"Thank god that's over with, now I can relax! What to do with all this stress-free free time!"
Finally, relief. Your papers are filed and sent out into the universe. It's off your back at last. Now on to more important things, like Netflix.

Photo credit: Getty

"When is my return coming? Is this going to be my life for the rest of my life? Yep, it is. So about that return..."
Now, you wait. You want that money. And the inevitable truth that your life will now be a neverending cycle of filing taxes and waiting for your return.

Photo credit: Getty

"SCORE my return was so much better than I expected! I'm buying a new dress. Or five. Probably five, why not?"
You're on a total life-high now. The possibilities of what you can spend your return on seem endless and even if you don't, having a nice bonus hunk of cash in your pocket feels pretty good. It made all of that stress completely worth it.

Photo credit: Getty

"Honestly filing wasn't even that bad this year. And now I don't have to think about it anymore. Well at least not for another year. But no use in worrying about that now!"
Alas, acceptance. You know you'll fall victim to the vicious cycle again when next year rolls around. But truthfully, you wouldn't have it any other way. Okay, you obviously would. But you'll never change your procrastinating ways!

Photo credit: Getty

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