One type of federal tax that Americans pay is income tax. Federal income taxes are the main source of revenue for the federal government, contributing over 40% of its yearly tax revenue. Many Americans do not care for paying taxes, yet the majority of Americans end up paying federal income tax at least during part of their lifetime.

There are two types of federal tax: direct tax and indirect tax (excise tax). Taxes taken out of workers’ paychecks are mandatory direct taxes and fall into three categories: Social Security, Medicare and federal income tax. The federal government charges an indirect tax for certain products or services bought; for instance, gasoline, tobacco, alcohol, real estate, landline, cellphone, toll or sales taxes. Indirect tax is not mandatory. Here are three federal income tax facts you may not know.

Not Everyone Pays Federal Income Tax

The Tax Policy Center (TPC) estimates that in 2015, out of 171.3 million tax units, the percentage of households that do not pay federal income tax is 45.3%, or 77.5 million. This reflects the number of Americans who do not file tax returns since they have no taxable federal income, and the remaining 54.7% of U.S. citizens receive adequate tax deductions or tax credits to remove their tax liability.

Of those who are not paying federal income tax, 40% of the eligible working population does not work, and another 10% just works part-time jobs. In addition, they are only paying excise tax such as tobacco taxes, gasoline taxes, alcohol taxes, sales taxes or phone taxes. This group also includes those jobless the entire year.

The bottom 40% of Americans have negative tax rates and receive a tax refund. Half of Americans who pay no federal income tax are low-income taxpayers. In addition, disability, Social Security and Medicare benefits are exempt from federal income tax. Other groups that do not pay federal income tax are students, foreign government employees and nonresident aliens.

Wealthy People Pay Federal Income Tax

According to a report by the TPC in 2014, the top 1% of taxpayers paid a higher federal income-tax rate than any other income group, approximately 23%, nearly seven times higher than those in the bottom 50%. The top 1% of taxpayers, who have an average income over $2.1 million, pay 43.6% of all federal income tax. The top 0.1%, or 115,000 families whose average income is over $9.4 million, pay more than 20% in federal income tax.

On average, those in the bottom 40% of the federal income tax bracket get more money from the federal government in tax credits or tax deductions. However, the wealthiest 20% of Americans pay the most in federal income tax, or 86.8% of all federal income tax.

Everyone Pays Federal Tax

The majority of Americans pay federal tax. Only 10% of households pay no federal tax. However, to avoid paying federal tax, a person would have to withdraw from the U.S. economic system.

Those who believe that the wealthy pay more in taxes base their sentiment only on federal income tax payments. Others believe wealthy Americans pay less or zero federal tax, while low- and middle-income Americans pay the most. However, everyone pays federal tax, including the wealthy, although the distribution of who pays what amount is widely spread out. This is because nearly all Americans pay an excise tax, which includes taxes on cigarettes, gasoline, tobacco, phones and alcohol.

Here is a comparison of the 2015 total federal taxes paid in the United States. The lowest 20% paid 0.8%, the second lowest 20% paid 3.4%, the middle income paid 9.2%, the second richest 20% paid 17.5% and the richest 20% paid 69%.

Bottom Line

All Americans pay federal tax, yet some only pay federal income tax, some only pay federal tax and others pay both. However, the federal tax code defines the amount of federal tax paid, which varies by income and locale.

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