Over 31% of all tax filers owed no federal income tax for Tax Year 2022, according to a National Taxpayers Union Foundation (NTUF) report released Wednesday.
For Tax Year 2022, of the 161.3 million tax returns filed, approximately 50.7 million returns were classified as non-paying. Non-paying returns include filers whose earnings fell below taxable thresholds or who qualified for credits that offset their liabilities.
“Despite rhetoric to the contrary, the federal income tax system is highly progressive. Thanks to various exemptions, deductions, and credits, millions of Americans are shielded from significant income tax liability,” said Demian Brady, NTUF Vice President of Research and author of the report.
Historically, the number of non-paying returns tends to rise during recessions and periods of high unemployment. Since data collection began in 1980, the highest recorded share of non-paying returns was 41.7% in 2009, during the aftermath of the Great Recession.
The trend of increasing numbers of non-paying returns also reflects policy changes aimed at providing relief to low-income households. During the 1980s, only 19.4% of returns were non-paying. By the 1990s, that figure had risen to 24.0%, and in the 2000s, it increased further to 32.3%. The 2010s saw another uptick to an average of 35.3%.
It should be noted that filers with no federal income tax liability often owe other taxes. Individuals earning wages are still subject to payroll taxes that fund Social Security and Medicare, which are assessed at a flat rate starting with the first dollar of income. However, comprehensive analyses that account for these additional taxes consistently find that the overall federal tax system remains highly progressive.
“As debates over the fairness of the tax code intensify ahead of the pending expiration of key provisions of the 2017 Tax Cuts and Jobs Act, it is crucial to ground discussions in the reality of how the system functions. The U.S. tax code is deliberately designed to be progressive, as evidenced by higher-income individuals shouldering a disproportionate share of the income tax burden, while lower-income earners are afforded significant relief,” Brady said.
Read the full report.