Wednesday, December 1

Fewer Americans had to pay federal income tax in 2020

(CNN)– Nearly 107 million American households, about 61%, did not owe federal income taxes in 2020, a huge increase from the pre-pandemic era. But that increase should be short-lived.
The upheaval of the economy caused by the coronavirus, which cost more than 20 million jobs in April 2020, and extensive federal aid packages increased the proportion of non-taxpayers by about 40%, according to the Center for Nonpartisan Fiscal Policy.

Only about 75 million households, or 44%, did not pay federal income tax in 2019, said Howard Gleckman, a senior fellow at the center, calling the 2020 increase “striking, but temporary.”

Many of the people who lost their jobs or had their hours reduced in the past year were lower wage workers they may have paid little income tax before the pandemic. Additionally, millions of Americans received up to $ 1,800 each in stimulus checks, which were actually refundable tax credits that significantly reduced people’s tax liability in 2020, as part of two congressional bailout deals.

Taken together, this meant that far fewer households had to pay federal income tax.

What will happen in 2021?

This year, the economy is doing better and Americans only received a Stimulus check of up to $ 1,400 each. But in his March US $ 1.9 trillion aid package, Congress also expanded three tax credits, most notably, the child tax credit, by 2021.

Therefore, the number of households that do not owe any federal income tax for this year will drop to about 102 million, or 57%, Gleckman said.

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Indeed, no household earning less than $ 28,000 will pay federal income tax: Typically, about 15% of the bottom income quintile has some tax liability.

And three-quarters of those who earn between $ 28,000 and $ 55,000 will be exempt from the obligation to pay income tax, compared with about half of the second quintile that normally has this obligation.

Among middle-income households earning between $ 55,000 and $ 98,000, a quarter will not have to pay federal income taxes, compared to the usual 18%.

“The people who really benefit the most are low-income families with children,” Gleckman said.

Next year, the Tax Policy Center expects the proportion of non-payers to return to its pre-pandemic trend, in the 40% range, unless Congress extends the push for tax credits, something that Democrats are considering doing as part of their budget resolution of US $ 3.5 trillion.

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