How COVID-19 impacts ALICE: Learn More
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Housing

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Health Care

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Child Care and Education

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Technology

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Food

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Taxes

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Transportation

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Introduction

While headlines often feature low-income households receiving government assistance, United for ALICE shows that ALICE households also contribute greatly to our economy by working, buying goods and services — and paying taxes. On average, these households pay about 22 percent of what they earn in income, property, and wage taxes.

The burden of paying taxes weighs especially heavily on ALICE families. Because they earn above the Federal Poverty Level (FPL), ALICE families have too high of an income to qualify for benefits like the Earned Income Tax Credit (EITC) and renter tax credits, or for public assistance programs including SNAP and Medicaid that would reduce their overall tax burden. At the same time, they earn too little to accumulate assets that would also bring tax relief — for example, to purchase a house and enjoy a mortgage tax deduction, or to own capital investments such as stocks or bonds that grow tax free.1

ALICE and Income Tax

ALICE families are required to pay income taxes. Overall, the federal income tax structure in the U.S. is progressive, meaning that those earning higher incomes pay a higher rate of tax. However, this is generally not the case for state, local, and payroll taxes:

Only those earning less than $20,800 per year for a couple, or $10,400 per year for an individual — both below the FPL — were not required to file an income tax return in 2017.5

ALICE and...

When ALICE and poverty-level households cannot afford to pay their taxes, they incur the risk of being audited and fined, as well as paying interest in addition to the original amount due. When tax revenue drops due to late or missed tax payments, it is harder for the government to invest in the services all households rely on, such as schools, health care, and transportation.

Sources

1
Internal Revenue Service. (2017). Instructions for Form 1040 . Retrieved from https://www.irs.gov/pub/irs-prior/i1040gi--2017.pdf

Center on Budget and Policy Priorities. (2018). Policy basics: Where do federal tax revenues come from? Retrieved from https://www.cbpp.org/research/federal-tax/policy-basics-where-do-federal-tax-revenues-come-from

2
Institute on Taxation and Economic Policy (ITEP). (2018). Who pays? A distributional analysis of the tax systems in all 50 states (6th ed.). Retrieved from https://itep.org/whopays/
3
Institute on Taxation and Economic Policy (ITEP). (2018). Who pays? A distributional analysis of the tax systems in all 50 states (6th ed.). Retrieved from https://itep.org/whopays/

4
Tax Policy Center (TPC), Urban Institute and Brookings Institution. (2018). Historical average federal tax rates for all households. Retrieved from https://www.taxpolicycenter.org/statistics/historical-average-federal-tax-rates-all-households

5
Internal Revenue Service. (2017). Instructions for Form 1040. Retrieved from https://www.irs.gov/pub/irs-prior/i1040gi--2017.pdf

6
Figueroa, E., & Waxman, S. (2017, March 1). Which states tax the sale of food for home consumption in 2017? Center on Budget and Policy Priorities. Retrieved from https://www.cbpp.org/research/state-budget-and-tax/which-states-tax-the-sale-of-food-for-home-consumption-in-2017

7
Center on Budget and Policy Priorities. (2018). Policy basics: Where do federal tax revenues come from? Retrieved from https://www.cbpp.org/research/federal-tax/policy-basics-where-do-federal-tax-revenues-come-from

Internal Revenue Service. (2019). Topic Number 409: Capital gains and losses. Retrieved from https://www.irs.gov/taxtopics/tc409