Every year, Americans gather necessary tax forms and prepare their returns, and contemplate what they could have done with the dollars that went to Uncle Sam and their state governments. However, five main categories of taxpayers are exempt from this process under our tax code.
- U.S. citizens who work abroad may not have to pay taxes to Internal Revenue Service if they meet specific criteria.
- Religious organizations are exempt from paying taxes.
- Some low-income taxpayers may be exempt from paying taxes.
- A substantial medical bill claimed on Schedule A as an unreimbursed medical expense can drastically reduce taxable income.
1. Not-for-Profit Organizations
Section 501(c)3 of the Internal Revenue Code dictates that any organization that qualifies to be classified under this section is exempt from paying income taxes. Qualifying organizations include religious, educational, and humanitarian entities, such as churches, synagogues, universities, hospitals, the Red Cross, homeless shelters, and other groups that seek to improve our society.
2. U.S. Citizens Working Abroad
If you live and work overseas, it is possible that you may not pay taxes to Uncle Sam on that income. For the tax reporting year 2022, Americans can earn up to $112,000 working abroad before paying taxes, and in 2023 that amount increases to $120,000.
Expatriates receive additional benefits by excluding or deducting housing costs from their incomes. To qualify, the taxpayer must meet specific requirements. They must be residents of a foreign country or physically present in a foreign country for at least 330 full days in a year.
3. Low-Income Taxpayers
If you earn an income that does not exceed the standard deduction, you do not need to pay taxes or file a tax return. For example, a married couple under age 65 must have earned at least $25,900 in 2022 or $27,700 in 2023 before the IRS requires them to file 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 older||an additional $1,400|
|Married, filing jointly, both spouses under 65||$25,900 or more|
|Married, filing jointly, one spouse 65 or older||an additional $1,750|
|Married, filing jointly, both spouses 65 or older||you both receive an additional $1,400|
|Filing Status (2023)||Then file a return if your income was:|
|Single, under 65||$13,850 or more|
|Single, 65 or older||an additional $1,500|
|Married, filing jointly, both spouses under 65||$27,700 or more|
|Married, filing jointly, one spouse 65 or older||an additional $1,850|
|Married, filing jointly, both spouses 65 or older||you both receive an additional $1,500|
4. Taxpayers With Many Deductions
Some taxpayers can write off most or all of their taxable income with personal deductions. For example, someone who incurs a substantial medical bill may be able to claim this on Schedule A as an unreimbursed medical expense, which can drastically reduce their taxable income, possibly to the point where it falls below the taxable threshold.
5. Taxpayers With Many Dependents
Lower-income families with dependent children might not have to pay taxes if they qualify for the Earned Income Tax Credit. A married couple with three children can qualify for a maximum tax credit of $7,430 in 2023, which would offset their tax bill dollar for dollar.
It is worth noting that taxpayers who don't have children can also qualify for a tax credit. A single person with no children can claim a maximum credit of $600 in 2023, and the income threshold for this taxpayer would be $17,640 in 2023.
Who Does Not Have to Pay Taxes?
Generally, you don't have to pay taxes if your income is less than the standard deduction, you have a certain number of dependents, working abroad and are below the required thresholds, or are a qualifying non-profit organization.
How Can I Receive Money and Not Pay Taxes?
If you receive income, you have to pay taxes on that money. Some situations where you receive money and will not have to pay taxes may include disability insurance payments, health savings accounts (HSAs), employer-provided insurance, life insurance payouts, financial gifts, and inheritances.
At What Age Do You Stop Filing Taxes?
Once you reach 65, you do not have to file taxes unless your non-Social-Security income is over a certain threshold.
The Bottom Line
Although some taxpayers are automatically exempt from taxation, such as 501(c)3 organizations, it is possible to exempt yourself from taxation by incurring substantial deductions or reducing your income.
Internal Revenue Service. "Foreign Earned Income Exclusion."
Internal Revenue Service. "Federal Income Tax Withholding for Persons Employed Abroad by a U.S. Person."
Internal Revenue Service. "Exemption Requirements - 501(c)(3) Organizations."
Internal Revenue Service. "Exempt Organization Types."
U.S. House of Representatives, Office of the Law Revision Counsel. "26 USC 501: Exemption From Tax on Corporations, Certain Trusts, etc."
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."
Internal Revenue Service. "Foreign Housing Exclusion or Deduction."
Internal Revenue Service. "Foreign Earned Income Exclusion - Bona Fide Residence Test."
Internal Revenue Service. "Foreign Earned Income Exclusion - Physical Presence Test."
Internal Revenue Service. "Rev. Proc. 2022-38," Page 13.
Internal Revenue Service. “Topic No. 501 Should I Itemize?”
Internal Revenue Service. "2022 Schedule A (Form 1040)"
Tax Foundation. "2023 Tax Brackets."
Internal Revenue Service. "Earned Income Tax Credit Income Limits and Maximum Credit Amounts."
Internal Revenue Service. "Publication 554 (2022), Tax Guide for Seniors."