Do Poor People Pay Taxes?

Do poor people or people have low income have to pay any taxes? Political pundits will often say this to upset others, or make a case for a change in taxes that they wish for. But is it true?

It’s getting near April 15 and many people are settling up with the IRS. Most people will get a refund, and the IRS estimates that refund to average somewhere over $2,000. But just under a third of all Americans will owe money to the IRS. Whether they get money back or owe money, a lot of people wonder how much other people are paying out in taxes.

People are worried about fairness. Hearing that poor or low income┬ápeople don’t have to pay taxes makes someone one who paid a large portion of their income feel cheated.

Not everyone pays federal income tax…

wp2015tableLike many rumors, there is a grain of truth in the rumors that low income or poor people don’t pay taxes. But it’s a very, very tiny grain. The big tax that everyone focuses on is federal income tax. This is one of the taxes that the IRS collects. The low end of the federal rate structure is a 10% tax on people making under $9,075.

However, the government also gives deductions. For example, if the low income earner has children, the IRS will allow deductions on the filing. It is possible, as a result, for low income earners to end up not owing taxes after deductions are applied. There are a variety of circumstances that lead to little or no taxes being paid.

According to the Washington Post, of the 7.9% of tax filers who zero out their taxes, the group comprises of students in school who have not started careers, people on disability and the unemployed.

The other large group who slide into paying few taxes are retirees. People who have put money aside in tax-free retirement savings don’t have to pay taxes on them when they start withdrawing them, which is why those plans are often recommended by financial advisers.

So the bulk of people not paying federal income taxes are the retired, injured, unemployed and young adults in school before their careers have started. Most people, from the age of 25-60, are paying taxes like everyone else.

…but everyone pays taxes, even poor people

The federal income tax is only a portion of all the taxes that are taken out. Anyone who carefully looks at a pay stub will spot that there are a variety of taxes that come out of their paycheck. There is federal. Then there is social security. State taxes. Local taxes. School taxes. Even if someone doesn’t own a home, real estate tax is baked into their rent. Everyone pays sales tax if it exists in their county or state. And if one uses a car, they pay gas taxes.

When all added up, which the Citizens for Tax Justice did in a study, they were able to determine what the average tax rates were for people of various income levels as a result of all the taxes added up:


So even the lowest income earners are paying taxes. Poor people are indeed contributing to social security, local taxes, real estate taxes through rent or a home, gas taxes when they drive to work, and so on.

Some people just plain refuse

Of course, some people just refuse to pay taxes by refusing to pay federal, state and local taxes. They’ll still pay a little in sales and gas taxes, however. So even tax dodgers who illegally refuse to pay their taxes still contribute to the system. The difference there is that they face legal issues and possibly jail time once caught.

In short, people who’re low income enough to catch a tax break aren’t likely celebrating it, as they’re going to be struggling to make ends meet. Or they’re a student learning valuable skills before entering the work force. Or they’ve worked for decades and are now enjoying the fruits of their labor.



Washington Post

Center for Tax Justice