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If you need more evidence about the financial impact of COVID-19 on the United States, try the following: According to a new report from the Urban-Brookings Tax Policy Center, about six in ten Americans didn’t pay federal income taxes over the past year.
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The report released on Wednesday estimates that nearly 107 million U.S. households, or approximately 61%, did not owe income tax or even received tax credits from the federal government. The proportion of non-payers was around 40% higher in 2020 than in 2019 before the pandemic.
There’s no secret why. In an analysis on the Tax Policy Center’s website, Senior Fellow Howard Gleckman wrote: “The COVID-19 pandemic and the policy response to it resulted in an exceptional increase in the number of American households that did not owe federal income tax in 2020.”
The combination of poor economic conditions and multiple rounds of government relief accounted for much of the decline. About 20 million workers lost their jobs, the Tax Policy Center found, many of whom were low-wage workers who paid very little income tax even before the pandemic.
Also, because the business stimulus checks sent to the Americans were designed as refundable tax credits, tax liabilities for recipients were significantly reduced in both 2020 and 2021.
Lower-income Americans weren’t the only ones to feel the pinch, however. As previously reported by GOBankingRates, a recent survey by Natixis Investment Managers found that even some wealthy Americans were negatively affected.
According to this survey, 9% of respondents – those with $ 100,000 or more in investable assets – said they lost their job or business for at least part of the year. About 25% said they lost personal or household income during the pandemic, and 19% said they were forced to tap into personal savings and other assets to make up ground. Overall, almost a fifth said they experienced a setback for their financial security.
The story goes on
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As the economic and employment outlook improves, you can expect the percentage of households that owe federal income taxes to return to normal at some point.
“The rise is likely to be temporary,” Gleckman wrote. “The proportion of non-payers will drop to around 102 million or 57 percent this year. And (the Tax Policy Center) predicts the percentage will return to pre-pandemic levels in 2022 and continue to decrease thereafter, provided the economy continues to recover and several temporary tax breaks expire as planned. “
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This article originally appeared on GOBankingRates.com: Approximately six in ten American households did not pay federal income taxes last year