5 Groups That Don't Pay Taxes

Every year, millions of Americans patiently wait for weeks to receive all of their necessary tax forms in the mail, dutifully gather them together and prepare their returns, and wistfully contemplate what they could have done with the dollars that went to Uncle Sam and their state governments.

But not everyone is subject to this process; some groups of people in America have been exempted from this process under our tax code. There are five main categories of taxpayers that are lucky enough to escape the tax man.

Key Takeaways

  • Some businesses and individuals do not pay taxes due to their situations.
  • 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 end up not owing anything in taxes due to their situations.
  • Many working Americans do pay some amount of income tax.

Personal Income Tax Guide

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 of any kind. 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. In 2021, Americans can earn up to $108,700 working abroad before they need to pay taxes, and in 2022 that amount goes up to $112,000.

Expatriates receive additional benefits, such as the ability to exclude or deduct housing costs from their incomes. To qualify, the taxpayer must meet specific requirements. They must be bona fide residents of a foreign country or be 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, not only do you not need to pay taxes, you don't need to file. For example, a married couple under the age of 65 would need to earn at least $25,100 ($25,900 for 2022) 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

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. For example, a married couple with three children could qualify for a maximum tax credit of $6,728 in 2021 (and $6,935 in 2022), which would offset their tax bill dollar for dollar.

The limit on the Child Tax Credit, previously $2,000, has been raised to $3,000 for children ages six through 17 and $3,600 for children under six. The credit is also now fully refundable; previously, only $1,400 was refundable. These changes are part of the American Rescue Plan of 2021 and are effective only for the 2021 tax year unless extended by an additional act of Congress. It is phased out for singles with incomes above $75,000 and couples with incomes above $150,000.

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 $1502 in 2021, and the income threshold for this taxpayer would be $21,430 in 2021.

The Bottom Line

Although some taxpayers are automatically exempted from taxation by default, such as 501(c)3 organizations, it is also possible to exempt yourself from taxation by incurring substantial deductions and/or reducing your income accordingly. Although it is not always wise to let your tax tail wag your financial dog, reducing your income below the taxable threshold will always feel good come tax time.

Article Sources
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  1. Internal Revenue Service. "Publication 501: Dependents, Standard Deduction, and Filing Information," Pages 2-4.

  2. Internal Revenue Service. "Foreign Earned Income Exclusion."

  3. Internal Revenue Service. "Federal Income Tax Withholding for Persons Employed Abroad by a U.S. Person."

  4. Internal Revenue Service. "Exemption Requirements - 501(c)(3) Organizations."

  5. U.S. House of Representatives, Office of the Law Revision Counsel. "26 USC 501: Exemption From Tax on Corporations, Certain Trusts, etc."

  6. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  7. Internal Revenue Service. "Foreign Housing Exclusion or Deduction."

  8. Internal Revenue Service. "Foreign Earned Income Exclusion - Bona Fide Residence Test."

  9. Internal Revenue Service. "Foreign Earned Income Exclusion - Physical Presence Test."

  10. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2021."

  11. Internal Revenue Service. "26 CFR 601.602: Tax Forms and Instructions," Page 14.

  12. Internal Revenue Service. “Topic No. 501 Should I Itemize?

  13. Internal Revenue Service. "Schedule A: Itemized Deductions."

  14. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  15. U.S. Department of the Treasury. "Child Tax Credit."

  16. Internal Revenue Service. "2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit."

  17. Internal Revenue Service. "Earned Income Tax Credit Income Limits and Maximum Credit Amounts."

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