States Vary Widely in Number of Tax Filers with No Income Tax Liability

May 24, 2010

Note: Updated data for 2010 is available here.

Fiscal Fact No. 229

Southern States Have Highest Percentages of "Nonpayers"

One of the most reported topics during the latest tax filing season was the record number of Americans who filed an income tax return but had no income tax liability after taking their credits and deductions.

According to the latest IRS figures for 2008, a record 52 million filers—36 percent of the 143 million who filed a tax return—had no tax liability because their credits and deductions reduced their liability to zero. Indeed, tax credits such as the child tax credit and earned income tax credit have become so generous that a family of four earning up to about $52,000 can expect to have their income tax liability erased entirely.1

There are millions of other Americans who have some income but not enough to be required to file a tax return. The Tax Policy Center has estimated that when these people are added to the 52 million nonpaying filers, some 47 percent of all households pay no income taxes at all.2

New data from the IRS allow us to calculate the number of nonpayers in each state who filed a tax return. Here we compare the percentage  of nonpayers in each state, both the absolute number of returns and the percentage of returns filed in each state.

Generally speaking, the most populated states have the most nonpayers. More than 6 million tax-filing Californians paid nothing to Uncle Sam for the 2008 tax year. That was 37 percent of the 16.4 million tax filers in California.

The map on page 1 and the table below show the percentage of tax filers in each state who have no income tax liability as well as the state's rank among the other 50 states. Nine of the ten states with the largest percentage of nonpayers are in the South and Southwest. In Mississippi, 45 percent of federal tax returns remit nothing or receive money with their federal tax returns; that is the highest percentage nationally. Georgia is next at 41 percent, followed by Arkansas at 41 percent, and Alabama, South Carolina, and New Mexico at 40 percent.

All of the top 10 ranking states have among the lowest median family incomes in the country. Of this group, Georgia has the highest median family income at $60,268. Mississippi has the lowest at $46,668.

By contrast, the states with the lowest percentage of nonpayers are not as geographically concentrated. What they tend to have in common is higher incomes. Half of the 10 with the lowest percentage of nonpayers are in the Northeast and half are in the West and Northern Plains states. Alaska has the lowest percentage of nonpayers, 21 percent of filers. Massachusetts has the second lowest at 27 percent, followed by Connecticut (27 percent), New Hampshire (28 percent), and Wyoming (28 percent) to round out the bottom five.

Nonpayers of Federal Income Taxes by State
Calendar Year 2008

State

Total Filers

Filers with
a Tax Liability

Filers with No Tax Liability

Percentage
of Filers with
No Liability

Rank (Most to Least)

US Total

143,490,468

95,520,933

51,045,911

36%

 

Mississippi

1,254,942

719,916

567,195

45%

1

Georgia

4,255,054

2,598,415

1,753,675

41%

2

Arkansas

1,223,637

755,772

498,682

41%

3

New Mexico

923,431

573,865

372,148

40%

4

Alabama

2,076,195

1,288,134

833,877

40%

5

South Carolina

2,047,201

1,273,969

818,631

40%

6

Louisiana

1,983,957

1,250,519

780,097

39%

7

Texas

10,792,258

6,822,725

4,226,513

39%

8

Florida

8,875,483

5,645,900

3,468,156

39%

9

Idaho

666,723

423,714

258,528

39%

10

Tennessee

2,842,898

1,814,965

1,100,304

39%

11

North Carolina

4,180,091

2,664,444

1,607,594

38%

12

Utah

1,145,303

730,938

432,744

38%

13

Arizona

2,714,182

1,756,481

1,010,982

37%

14

Kentucky

1,869,439

1,218,223

694,890

37%

15

California

16,478,215

10,809,941

6,083,777

37%

16

Oklahoma

1,605,411

1,051,298

591,878

37%

17

Montana

477,153

314,174

174,568

37%

18

Indiana

3,019,320

1,992,138

1,083,040

36%

19

Michigan

4,626,365

3,059,154

1,659,010

36%

20

Missouri

2,739,220

1,832,981

963,611

35%

21

West Virginia

785,966

527,282

275,876

35%

22

New York

9,203,531

6,233,030

3,223,814

35%

23

Oregon

1,753,860

1,182,640

608,311

35%

24

Nevada

1,272,433

854,584

441,251

35%

25

Illinois

6,112,426

4,128,709

2,100,258

34%

26

South Dakota

389,575

266,064

131,608

34%

27

Kansas

1,328,944

905,922

446,675

34%

28

Nebraska

857,622

591,594

282,150

33%

29

Maine

633,674

443,576

206,378

33%

30

Vermont

320,162

224,748

103,669

32%

31

Hawaii

656,452

459,268

211,696

32%

32

Pennsylvania

6,130,055

4,264,743

1,975,694

32%

33

Ohio

5,562,764

3,876,376

1,789,893

32%

34

Wisconsin

2,767,859

1,940,996

873,884

32%

35

Colorado

2,340,854

1,654,661

731,210

31%

36

Iowa

1,415,088

1,000,188

441,887

31%

37

Rhode Island

510,709

361,016

159,378

31%

38

Delaware

425,490

303,666

129,186

30%

39

New Jersey

4,304,848

3,077,401

1,301,727

30%

40

Virginia

3,727,792

2,674,714

1,120,668

30%

41

Minnesota

2,569,679

1,850,504

764,698

30%

42

Washington

3,185,705

2,302,518

939,240

29%

43

Maryland

2,776,026

2,012,029

811,278

29%

44

North Dakota

322,761

235,533

92,955

29%

45

Wyoming

274,041

201,684

77,085

28%

46

New Hampshire

668,971

497,127

184,299

28%

47

Connecticut

1,742,470

1,296,183

474,410

27%

48

Massachusetts

3,197,925

2,387,861

866,220

27%

49

Alaska

359,709

290,564

74,876

21%

50

Dist. of Columbia

302,531

223,339

84,641

28%

 

Source: Tax Foundation calculations based on IRS data.
Adjustments were made to account for EITC recipients in the nonpayer estimate.

Notes

1 Scott A. Hodge, "Record Numbers of People Paying No Income Tax; Over 50 Million 'Nonpayers' Include Families Making over $50,000," Tax Foundation Fiscal Fact, No. 214,  March 10, 2010.

2 http://www.taxpolicycenter.org/taxtopics/federal-taxes-households.cfm.

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