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Four Things We Can Learn About Millennials from Their Tax Returns

2 min readBy: Scott Greenberg

Yesterday, I wrote about the income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burden faced by millennials – the cohort of Americans born between 1980 and 2000. When we examine the IRS data that breaks down tax returns by age, it turns out that millennials don’t pay very much in income taxes. But the same IRS data offers lots of other insights about millennials – how they earn their income, what provisions of the tax code apply to them, and what sort of lifestyles they live. Here are four interesting findings:

1. Not many millennials are self-employed

Millennials have sometimes been called “America’s most entrepreneurial generation yet.” However, this claim is not backed up by the tax data: few millennials report self-employment income to the IRS. Overall, 12.81 percent of taxpayers reported self-employment income in 2013, but only 9.32 percent of millennials reported self-employment income.[1]

2. Millennials don’t gamble that much, and they also don’t win much

According to some, millennials are “the most risk averse generation since the Great Depression.” This claim is backed up by the tax data – millennials are the least likely generation to report gambling earnings on their tax returns. In 2013, millennials filed 33.61 percent of all tax returns but only 9.59 percent of returns that reported gambling income. Furthermore, millennials only accounted for 5.94 percent of all gambling earnings reported. However, not all gambling income is reported to the IRS, so millennials might be doing a lot of gambling that they’re just keeping quiet about.

3. Millennials don’t see much of their debt cancelled

Many millennials are in debt, and some have called for more student loan debts to be cancelled. Taxpayers whose debts are cancelled usually have to report their debt cancellation as taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . However, most of the debt cancellation that was reported in 2013 went to older taxpayers, not millennials. While taxpayers reported $10 billion of cancelled debt on their tax returns, only 5.53 percent was reported by millennials.

4. Millennials are primary beneficiaries of the Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxpayers claimed $61 billion through the Earned Income Tax Credit in 2013. Out of this total, $29 billion went to taxpayers between 18 and 34 years of age. In other words, 47.21 percent of the benefit of the Earned Income Tax Credit went to the 33.61 percent youngest adult taxpayers. As I noted yesterday, this is an important statistic for lawmakers to be aware of. When congressmen envision the typical recipients of the Earned Income Tax Credit, they should envision 30-year olds.

[1] This figure includes all taxpayers with self-employment income over $400 who paid self-employment taxes.