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If your income falls below $ 75,000 for 2021, chances are you won’t pay any income tax on it.
On average, taxpayers in this category, after taking into account deductions and credits, have no tax liability when they file their tax return for 2021 next spring. This emerges from the latest estimates by the non-partisan mixed tax committee. These households may also get money back from the IRS.
Even for taxpayers earning $ 75,000 to $ 100,000 in 2021, the average income tax rate paid is 1.8%.
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“The main drivers for non-payers are [earned income tax credit] for low-income earners and the tax credit for children with families after taking into account the standard allowance, “said Garrett Watson, senior policy analyst at the Tax Foundation.
For 2021, the standard deduction for individual taxpayers is $ 12,550. For married couples filing together, it’s $ 25,100.
While a zero-tax bill is not a new phenomenon, it may be more pronounced this year due to a variety of temporary changes in tax legislation, said Elaine Maag, research fellow at the Urban-Brookings Tax Policy Center.
In addition to the Covid Stimulus Checks of up to $ 1,400 per adult and dependent approved in the American Rescue Plan, several tax credits have been expanded. These include the Earned Income Tax Credit and the Child Tax Credit (see details below). Both credits are considered valuable as they are refundable. Even if your tax bill is zero, you can have some or all of the credits refunded to you.
The Congressional projections do not mean that anyone who earns less than $ 75,000 will not pay taxes.
“There are many people in this income group who owe taxes,” said Maag. “Those are the averages for everyone.”
If you don’t owe the IRS anything for your income, it doesn’t mean you don’t have to pay federal taxes.
For example, if you make money from a job (as opposed to investing, for example), you pay taxes to Social Security and Medicare. This so-called wage tax is 7.65%, which your employer withholds from your paycheck (and contributes the same amount – 7.65% – to these programs on your behalf).
If you’re self-employed, you’ll pay both shares yourself, or 15.3% (although you can deduct half of that elsewhere on your tax return).
Estimated distribution of income taxes in 2021
|Individual income||Projected Average Income Tax Rate, 2021|
|Under $ 75,000|
|$ 75,000 to $ 100,000||1.80%|
|$ 100,000 to $ 200,000||5.70%|
|$ 200,000 to $ 500,000||13%|
|$ 500,000 – $ 1 thousand||20.80%|
|Over $ 1 million||25.80%|
According to the latest data from Statista, about 53% of Americans had an annual household income of less than $ 75,000 in 2019. According to the St. Louis Federal Reserve Bank, the median household income in the United States that year was about $ 68,700.
“The group that doesn’t pay federal income tax in a given year is typically a moderate income among children and the elderly who may not have an income to pay tax on,” Maag said.
Credit Details: The child tax credit will be increased in a number of ways for 2021, including increasing the per-child payment from $ 2,000 for families with income below certain thresholds to $ 3,000 (exit starting at $ 75,000 for singles, US $ 112,500 for heads of household and US $ 150,000 for married couples), plus US $ 600 for children under 6 years of age. Children aged 17 and over also qualify for the first time.
These child tax credits will be brought forward via direct payments from July.
The tax credit for childless workers has also been expanded by increasing the maximum tax credit for this cohort from $ 543 to $ 1,502 in 2021, according to the Tax Foundation. The benefit would arise if taxpayers submit their tax returns for 2021 in spring 2022.
The bill also increases the income level (from $ 4,220 to $ 9,820) at which the earned income tax credit hits its maximum and changes the exit to $ 11,610 instead of $ 5,280 for individual taxpayers. The age for qualifying for the credit will also be changed for this year: the minimum age is 19 instead of 24 years and the maximum age of 65 years would be deleted.