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Millions of workers are bouncing back — and making enough money to pay Uncle Sam.
Some 72.5 million households or 40% of households will pay no federal income tax this year, down from the pandemic high of 60% two years ago, according to estimates from the Tax Policy Center.
In 2021, nearly 56% of households or 99 million households paid no federal income tax, down from 60% or 100 million households in 2020, the nonpartisan think tank’s said in the report.
“For 2022, the standard deduction is worth $12,950 for individuals and $25,900 for married couples filing jointly. People earning below that amount do not owe federal income taxes.”
Massive job losses in the pandemic’s early stages sent millions of people to unemployment lines and temporary rules exempted much of 2020 jobless benefits from income taxes, Howard Gleckman, senior fellow at Tax Policy Center, said.
Meanwhile, there were waves of direct cash assistance that were all technically tax credits — two round of stimulus checks in 2020 and another round in 2021, plus a temporarily enhanced child tax credit. Those waves came and went.
The approximate 40% of households projected to pay no federal income tax is back to pre-pandemic levels, and is even slightly smaller than the 42% to 43% range during recent pre-pandemic years, Gleckman noted.
It reflects the labor market’s return to its pre-pandemic status, “which is to say pretty tight, pretty strong,” Gleckman said. “Lots of people are working, lots of people are paying income tax.”
For 2022, the standard deduction is worth $12,950 for individuals and $25,900 for married couples filing jointly. People earning below that amount do not owe federal income taxes, even if it may still be a good idea to file a return to access credits including the earned income tax credit and the child tax credit, Gleckman said.
The uncertain economic outlook
September’s jobless rate was 3.5%, the same as February 2020, and one of the lowest rates since the late 1960s.
Nearly half (49%) of surveyed voters said the economy would be an extremely important factor in their vote, according to a new Gallup poll. Inflation rates are sticking around four decade highs and recession worries are also looming.
Republicans are poised to gain the majority in the House of Representative in the midterm elections on Nov. 8, polls and betting markets are indicating, but the race for the U.S. Senate could still be a close call.
In some ways, the new tax estimates reflect current economic conditions. But they don’t give insight into other parts of the economy, like the fast-rising costs of goods and services that will surely be on voters’ minds.
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