More Than Half of US Households Paid No Federal Income Tax As COVID Took a Toll

by Taylor Cunningham
(Photo by Tim Boyle/Getty Images)

A recent report by the nonpartisan Tax Policy Center shows that more than half of US households paid zero federal income tax last year because of COVID relief funds and aid.

At a Glance

  • Due to Covid-relief funds, stimulus checks, and tax credits, 57% of American households paid no federal income tax in 2021.
  • The number jumped from 44% in 2020.
  • A large portion of workers also didn’t pay payroll taxes last year.
  • To help offset the loss of funds, some Republican lawmakers are asking for tax reforms.

The Amount of People Who Didn’t Make Enough to Pay Federal Income Tax in 2021 Jumped by 13%

According to Howard Gleckman, a senior fellow at The Tax Policy Center, exactly 57% of households didn’t earn enough money to pay federal incomes taxes, which is a startling jump from 44% pre-pandemic. Gleckman shared that the cause was due to stimulus checks and tax credits and also COVID-related unemployment and income loss.

The $1.9 trillion expanded child tax credit that president Biden signed in March 2021 was another factor that lowered “the income tax liability of more than a hundred million households and temporarily turned many from payers of small amounts of federal income tax to non-payers,” Gleckman wrote.

However, Congress decided not to extend the child tax credit when it was introduced on the Build Back Better bill in December 2021. So the number of people not making enough to pay federal income taxes should drop drastically by the next tax season.

With that and other pandemic relief programs coming to an end, the Tax Policy Center predicts that the number of non-paying households will fall to 42% next year. And by 2029, it should settle at 38%.

“We predict it will go back down and remain fairly low relative to historical standards,” added Gleckman.

A Large Portion of Americans Also Skipped Payroll Taxes in 2021

Federal incomes taxes weren’t the only ones affected by COVID-19. Many Americans were also able to skip payroll taxes. And 19% of people paid neither of the taxes compared to 17% pre-COVID.

To help offset the drop in federal funds last year, many conservatives are looking into a tax reform. The plan would make all Americans qualify for income tax. However, lawmakers such as Sen. Rick Scott aren’t calling it a tax hike.

“I’m not going to raise anybody’s taxes, but I want to have the conversation,” he said. “We’ve got able-bodied Americans who are living off of government programs instead of working. And that’s caused by these Democrat policies. And that doesn’t work. We got billionaires that are not paying, you know, income taxes.

If the reform proceeds, every working American would pay at least $100 in income taxes. That would give the federal government an extra $100 billion in revenue.