As you're struggling to fill out your tax return, and wondering where the money will come from to send to the Internal Revenue Service, ever wonder how many of your neighbors aren't paying taxes? Would you believe nearly half? That's right: nearly half of American households won't pay any federal income tax for 2015 legally. And some of them will get a refund anyway!
As remarkable as it may sound, the Tax Policy Center concluded that an estimated 45.3% of Americans do not have any 2015 federal individual income taxes to pay at all — and some of them actually have a negative income tax rate, meaning they will receive benefits that are beyond their zero tax liability.
This is not an unusual situation, either. Information from the Tax Policy Center shows that the number of households that pay no federal income taxes has been rising steadily. In 2011, there were 74.8 million households that did not owe federal taxes, compared to 77.5 million in 2015. At least percentage-wise, the amount of non-federal-taxpaying households is decreasing, from 45.8% in 2011 to 45.3% today.
Out of 171.3 million households (or "tax units" in the dry phrasing of the Tax Policy Center), 143.4 million households filed taxes. Within that group, 93.8 million households owed taxes of at least $5 (taxes of $5 or less were considered the same as no taxes at all for analytical purposes).
View the 10 strangest ways states tax you:
10 Strangest Ways That States Tax You (or Don't)
45% of Americans pay no federal income tax
To preserve the uniqueness of their island paradise, Hawaii since 2004 has had an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction. The work must be done by a certified arborist, and the deduction can be claimed only every third year. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators tax anyone who deals in their official state fruit-blueberries, at the rate of 1.5 cents per pound. The resulting revenues-more than $1.6 million to state coffers in the fiscal year that ended in June 2013-are used to promote the crop and agricultural research.
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower.
Alabama is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco. Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
Virginia levies a 50-cent excise tax on every lamb or sheep sold in the state. Both the Maine and Virginia taxes are examples of checkoff programs that collect taxes from an industry to fund promotional campaigns for the products. National commodity checkoff programs, authorized by the U.S. Department of Agriculture, have brought you campaigns such as "Beef: It's What's for Dinner" and "Got Milk?" But the Virginia program is extremely modest by comparison, having collected only $9,000 in fiscal year 2013. The funds go to the Virginia Sheep Industry Board, which spends them largely on predator control.
In 2013, in part to meet federal pollution-control mandates, Maryland legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Chesapeake Bay, the largest marine estuary in the U.S. Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called “rain tax.” One way localities calculate the tax is by measuring how much of a landowner’s tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, a heavily developed suburb of Washington, and many landowners are up in arms. New Maryland Gov. Larry Hogan, a Republican, campaigned against this tax in his winning 2014 campaign and has introduced legislation to repeal it, though it’s not clear that will fly with Democratic state legislators. Money still needs to be raised to satisfy the federal pollution mandates, but the methods may change.
Kansas is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores. But Kansas also taxes “3.2” beer differently -- and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kansas, for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose. Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to Nevada ranging from 5 percent to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on. There are exemptions, however, including this one, for businesses that provide "instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen." So your piano player can play “Feelings” softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in New Jersey. Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax.
In New Mexico, making it to 100 years has a payoff beyond the chance that Willard Scott will wish you a happy birthday: You don’t have to pay state income tax anymore. If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.
The table projects results to 2025 assuming current tax law (an assumption that is almost guaranteed not to happen) and while both the number and percentage of non-taxpaying households is predicted to fall, it never goes below 74.1 million households and 40% respectively. Estimations for the 2015 tax year and beyond are provided by a Tax Policy Center simulation model.
This statistic may bring to mind rich people avoiding taxesthrough loopholes and other tax shenanigans, but it shouldn't. Of that 77.5 million, approximately half do not pay taxes because they have no taxable income at all, and the other half get enough tax breaks to compensate for their tax liability. Thanks to refundable credits like the Earned Income Tax Credit and components of the Child Tax Credit, it is possible to end up with a negative tax rate.
In reality, the average income tax bill per person is negative for the lower 40% of incomes, as it almost has to be for the above statistics to be possible. According to data from the Tax Policy Center, the average income tax bill per person is a negative $643 for the lower 20% of incomes and a negative $621 for the second lowest 20%. Combined, that means that the remaining 60% must pony up an extra 4% of the collective tax bill — in other words, 60% of America pays the entirety of the country's federal income taxes plus another 4% of that bill that is redistributed to the lower 40% of taxpayers.
Meanwhile, the richest 20% of American households pay an average of $50,176 in taxes and account for 86.8% of the total federal tax bill. Households with the top 1% of income pay 43.6% of America's tax bill, and the 115,000 households that comprise the top 0.1% pay over 20% of the tax bill.
One can argue whether this is the right distribution of taxes from either an economic or a social justice standpoint — and in an election year that is going to happen ad nauseum — but there is no argument that the amount of households paying no federal taxes is fairly close to half. Given that many of those households are on the lower end of the economic spectrum, it is entirely possible that the number could increase under either Republican or Democratic administrations.
Don't miss the important tax dates of 2016:
Important tax dates to know
45% of Americans pay no federal income tax
January 15, 2016: Those who are self-employed or have fourth-quarter income that requires payment for quarterly estimated taxes must have them postmarked by this date
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April 18, 2016: Individual tax returns are due for the 2015 tax year
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April 18, 2016: Requests for an extension on filling out your taxes must be filed by this date
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April 18, 2016: Those who are self-employed or have first-quarter income that requires payment for quarterly estimated taxes must have them postmarked by this date
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April 18, 2016: This date is also the deadline to make a contribution to an IRA account for 2015
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June 15, 2016: Those who are self-employed or have second-quarter income that requires payment for quarterly estimated taxes must have them postmarked by this date
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September 15, 2016: Those who are self-employed or have second-quarter income that requires payment for quarterly estimated taxes must have them postmarked by this date
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October 17, 2016: 2015 tax returns that received an extension are due by this date
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October 17, 2016: Today is the last chance to recharacterize a traditional IRA that was converted to a Roth IRA during 2015
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January 15, 2017: Those who are self-employed or have fourth-quarter income that requires payment for quarterly estimated taxes must have them postmarked by this date
If you're going through a divorce, taxes may be the last thing on your mind, so we're here to help. We've got tips for you on which filing status to choose after the divorce, who can claim the exemptions for the kids, and how payments to an ex-spouse are treated for tax purposes.
Filing taxes as a single parent requires coordination between you and your ex-spouse or partner. Usually the custodial parent claims the child as a dependent, but there are exceptions. A single parent is allowed to claim applicable deductions and exemptions for each qualifying child. Even though you claim your child as a dependent, she may still have to file her own tax return if she has income, such as from an after-school job.
The Child Tax Credit can reduce your tax bill by as much as $1,000 per child, if you meet all seven requirements: 1. age, 2. relationship, 3. support, 4. dependent status, 5. citizenship, 6. length of residency and 7. family income. You and/or your child must pass all seven to claim this tax credit.