5 Groups That Don’t Pay Taxes

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5 Groups That Don’t Pay Taxes

Every year, millions of Americans patiently wait for weeks for all of their required tax papers to arrive in the mail, faithfully assemble them and complete their returns, then longingly consider what they might have done with the money that went to Uncle Sam and their state governments.

However, not everyone is subject to this procedure; under our tax legislation, some categories of individuals in America are excluded from it. There are five primary types of taxpayers that are fortunate enough to avoid paying taxes.

Key Takeaways

  • Due to their circumstances, some firms and people do not pay taxes.
  • If certain requirements are met, U.S. citizens working overseas may not be required to pay taxes to the Internal Revenue Service.
  • Religious groups are not required to pay taxes.
  • Because of their circumstances, some low-income taxpayers may wind up owing no taxes.
  • Many working Americans are required to pay income tax.

Personal Income Tax Guide

1. Not-for-Profit Organizations

Section 501(c)3 of the Internal Revenue Code states that any organization that qualifies for this classification is free from paying any income taxes. Religious, educational, and humanitarian organizations such as churches, synagogues, colleges, hospitals, the Red Cross, homeless shelters, and other institutions that strive to enhance our society are all eligible.

2. U.S. Citizens Working Abroad

If you reside and work in another country, you may not have to pay taxes to Uncle Sam on your earnings. Americans may earn up to $108,700 working overseas before paying taxes in 2021, and that limit rises to $112,000 in 2022.

  Payroll Tax

Expatriates are entitled to extra advantages, such as the opportunity to exclude or deduct housing expenditures from their earnings. To qualify, the taxpayer must fulfill certain criteria. They must be genuine foreign residents or physically present in a foreign nation for at least 330 full days each year.

3. Low-Income Taxpayers

If your income does not exceed the standard deduction, you do not have to pay taxes and you do not have to file. A married couple under the age of 65, for example, would have to earn at least $25,100 ($25,900 in 2022) before the IRS asks them to pay their taxes.

Below are the filing requirements set by the IRS.

Filing Status (2022)Then file a return if your income was:
Single, under 65$12,950 or more
Single, 65 or olderan additional $1,400
Married, filing jointly, both spouses under 65$25,900 or more
Married, filing jointly, one spouse 65 or olderan additional $1,750
Married, filing jointly, both spouses 65 or olderyou both receive an additional $1,400

4. Taxpayers with Many Deductions

Personal deductions allow certain taxpayers to deduct most or all of their taxable income. For example, if a person incurs a large medical bill, they may be able to claim it on Schedule A as an unreimbursed medical cost, lowering their taxable income to the point where it falls below the taxable threshold.

5. Taxpayers with Many Dependents

Lower-income families with dependent children that qualify for the Earned Income Tax Credit may not have to pay taxes. A married couple with three children, for example, may be eligible for a maximum tax credit of $6,728 in 2021 (and $6,935 in 2022), which would balance their tax burden dollar for dollar.

  Property Tax Deduction Definition

The Child Tax Credit maximum has been increased from $2,000 to $3,000 for children aged six to seventeen, and $3,600 for children under the age of six. The credit is also now entirely refundable; earlier, it was just $1,400. These amendments are part of the American Rescue Plan of 2021 and will be in force only for the fiscal year 2021, unless extended by an additional act of Congress. It is phased away for individuals earning more over $75,000 and couples earning more than $150,000.

It should be noted that people who do not have children may also be eligible for a tax credit. In 2021, a single individual with no children may claim a maximum credit of $1502, and the income threshold for this taxpayer is $21,430.

The Bottom Line

Although certain taxpayers, such as 501(c)3 organizations, are automatically free from taxes, it is also feasible to exempt oneself from taxation by incurring considerable deductions and/or decreasing your income proportionately. Although it is not always a smart idea to let your tax tail wag your financial dog, lowering your income below the taxable threshold will always make you feel better come tax time.

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