Monday, April 05, 2010

5 Myths About your Taxes

From the Washington Post:

1. The poorest and the richest Americans pay no taxes.

About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half -- mostly middle- and lower-income households -- will take advantage of tax credits such as the earned income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver's credit, which subsidizes retirement saving.

But even citizens who pay no income tax still pay other kinds of taxes. They pay Social Security and Medicare taxes when they work, sales taxes when they buy things and property taxes on their homes. Drivers pay gasoline taxes, and smokers and drinkers pay excise taxes on tobacco and alcohol. According to our research, more than 75 percent of us will pay at least some form of federal tax in 2010.

Those who pay no federal taxes are mostly the low-income elderly or very poor families with children. Even about half of those with annual incomes under $10,000 pay some federal tax, most often payroll taxes on wages.

And yes, the richest Americans pay taxes, too. Though a tiny minority manage to avoid federal income tax through elaborate tax planning, 99.7 percent of those with annual incomes above $1 million will pay federal taxes this year, surrendering 27 percent of their earnings to the government. The average American taxpayer pays 18 percent.

2. Americans are overtaxed.

In 2007, federal, state and local taxes claimed about $3.8 trillion, or 27 percent of U.S. gross domestic product. That's nearly $13,000 for every American. Two-thirds of tax revenues went to the federal government.

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