In 2022, 31.4% of tax filers paid no federal individual income tax. If deductions and credits reduce a filer’s taxable income to $0, they don’t have to pay federal income tax.
Although these filers didn’t pay federal income taxes, it doesn’t mean they didn’t pay taxes at all — just no federal income tax. People pay taxes in many other ways, including payroll tax, state and local tax, sales tax, and property tax.
Still, federal income tax is the largest single tax revenue stream for the federal government. In fiscal year 2024, federal income taxes contributed $2.4 trillion to the government's $4.9 trillion revenue.
Individual income taxes accounted for nearly half of FY 2024 federal revenue.
Federal government net revenue
How can someone earn income but not owe any income tax?
Someone can be required to file taxes because they earned income above the non-filing threshold but not owe anything if their income isn’t taxable, their income is too low after deductions, they qualify for enough tax credits to reduce their tax bill to zero, or some combination of the three. People at all income levels take advantage of these options to reduce or eliminate their tax bills.
Type of income
Some forms of income are taxable and others are not.
Most forms of income is taxable unless specifically excluded by IRS rules. Taxable income includes wages, earnings from self-employment, interest, dividends, rental income, unemployment benefits, and income from partnerships or S corporations.
Income payments coming from disaster relief, gifts, inheritances, and specific aid programs are not taxable.
Deductions
Once a filer determines their gross income from taxable sources, they reduce it with deductions in one of two ways: the standard deduction or itemed deductions.
The standard deduction is a fixed amount based on filing status (individual, married filing jointly, or head of household) and is subtracted from gross income before calculating taxes, reducing someone’s taxable income.
Itemized deductions allow filers to subtract specific expenses — mortgage interest, state and local taxes, or medical costs, and more — from their gross income. Each deduction must be documented. Taxpayers usually itemize when the total of these expenses exceeds the standard deduction.
Credits
A tax credit is a dollar-for-dollar reduction of tax owed. If you owe $1,000 and have a $300 tax credit, the tax you owe drops to $700. Some credits are based on life circumstances (e.g., going to school, paying for childcare) and some are based on legislation meant to encourage particular actions (e.g., installing solar panels on your home).
Some tax credits are nonrefundable: they may drop your tax bill below zero, but the government will not repay that money to you. Refundable credits can generate a refund if the credit exceeds the tax you owe. There are also partially refundable credits that may provide a refund up to a certain limit.
Which income groups are least likely to owe federal income tax?
People earning less than $50,000 a year are less likely than higher-income groups to owe federal income tax. This group files more than half of all tax returns and pays a small share of total federal income tax. In 2018 they filed 57.8% of all returns and paid around 4.3% of total federal income taxes.
After the Tax Cuts and Jobs Act took effect in 2018 the percentage of filers who didn’t owe grew, especially among lower-income filers. The standard deduction nearly doubled; paired with credits, this left more people with incomes too low to be taxed. Among filers making under $25,000, the share who didn’t pay federal income tax went from 68.8% in 2017 to 75.2% in 2018. In 2022, it was 77.8%.
In 2018, nearly 30% of filers earning $25,000 to $50,000 didn’t owe taxes, up 26.6% from the year before.
Higher-income earners are subject to higher tax rates and tend to pay a larger portion of total federal income taxes. In 2018, people making $100,000+ paid over 83% of all federal income taxes. Of that group, those earning over $500,000—just under 2% of filers—contributed over 40%.
A small share of filers (0.4%) making over $1 million did not pay any federal income tax in 2022. This happens for a number of reasons: large tax deductions, tax credits, lower tax rates on some kinds of income, or business losses.
The overall share of filers who owed no federal income tax in 2022 was similar to 2017 — 31.4% vs. 32.1%.
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