Do Lower-Income Citizens Pay Taxes?
A variety of tax-credit options exist for citizens who earn minimal incomes. Each year, Congress updates the tax code, many times providing additional credits for low-income families and individuals. Low-income citizens who use the credits often have little or no federal income tax liability. State income tax obligations, however, vary significantly.
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Federal Income Tax
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Some low-income wage earners do not have to file an income tax return at all. In 2010, if a single person under age 65 made less than $9,350, he did not have to file a return. Those married filing jointly and both under age 65 did not have to file if their combined gross income was less than $18,700. Modest-income Americans may still file returns because it is in their best interest to do so. By filing federal income tax returns, lower-income wage earners can take advantage of myriad credits aimed at reducing their tax burdens.
Earned-Income Credit
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Even if a taxpayer pays no federal income tax, she might be eligible for the earned- income tax credit, which for 2010 could be as high as $5,657. Primarily available to families with children, the credit extends to married taxpayers with no children who file a joint return and fall within certain income parameters, which vary from year to year. This refundable credit helps people who work but earn low-to-modest incomes.
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Child Tax Credit
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Claiming the child tax credit is another way modest-income Americans can reduce their tax burdens and increase their refunds. Because the child tax credit is considered a refundable credit, filers can get money back even if they have no tax liability or have paid no federal income tax during the tax year. In order to claim a child for the child tax credit, he must meet six tests of qualifying criteria: age, relationship, support, dependence, citizenship and residence. This credit is substantial because it can reduce a filer's income tax by up to $1,000 for each qualifying child.
Making Work Pay
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A more recently implemented tax credit, Making Work Pay, is structured to allow workers to benefit from larger paychecks during the year. However, the Making Work Pay tax credit may not be for everyone. Those taxpayers who historically receive small refunds may find themselves with no refund or, in some situations, owing a small amount to the Internal Revenue Service. This could happen because of changes made to the withholding tables to accommodate the Making Work Pay credit. For example, if you are a pensioner, have multiple jobs, are married and both have incomes or if you receive Social Security and work, you should check your withholding to make sure enough taxes are collected so you will not have a tax liability at the end of the year.
State Income Tax
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All states that impose an income tax have rules that coincide with filing and collection of citizens' obligations. Besides filing a federal income tax return, you have to file a state income tax return if the state you live in levies a state income tax. Many states offer credits for lower-income residents comparable to those offered by the federal government.
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References
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- Photo Credit tax forms image by Chad McDermott from Fotolia.com
