Sixty-one percent of households owed no federal income taxes last year: analysis
About 61 percent of households owed no federal income taxes last year, an increase from previous years that was driven by the coronavirus pandemic, the Urban-Brookings Tax Policy Center (TPC) said in an analysis this week.
Roughly 107 million households were nonpayers in 2020, compared to 76 million, or 44 percent of households, in 2019, TPC said.
“The number of households who paid no income tax last year truly was eye-popping,” TPC senior fellow Howard Gleckman wrote. “But keep in mind: It was only temporary.”
Gleckman noted that there were millions of workers who lost their jobs in 2020 and that the federal government started issuing three rounds of stimulus checks in April 2020 that were structured as refundable tax credits.
“Because they were designed as refundable tax credits, they had the effect of significantly reducing tax liability in both 2020 and 2021,” he wrote. “And the payments flipped some households from paying income tax to not doing so.”
Gleckman also said that many of the households that didn’t pay federal income taxes in 2020 still paid other types of taxes, including payroll taxes and various types of state taxes. Only about 21 percent of households paid neither federal income taxes nor payroll taxes last year, according to TPC’s estimates.
TPC estimates that the percentage of households paying no federal income taxes will fall in subsequent years, absent congressional action. The think tank estimates that about 57 percent of households will pay no federal income taxes for 2021, and about 42 percent will pay no federal income taxes for 2022 under current law.
The households that are estimated to pay no federal income taxes this year primarily have low- and middle-incomes, TPC said.
President Biden enacted a coronavirus relief law in March that expanded three tax credits benefiting low- and middle-income households for 2021. Democrats are hoping to extend those expansions as part of a wide-ranging spending package they intend to pass later this year.