In 2025, according to the latest Tax Policy Center estimates, 40 percent of households, or about 76 million “tax units,” will pay no federal individual income tax. This number—slightly lower than three years ago—is not unusual, but it is often misunderstood.
Income drives how much federal income tax a household pays. TPC estimates that in 2025, of those households who will pay no federal income tax, about 70 percent earn less than $75,000 and about 45 percent earn less than $40,000. (TPC measures income according to a household’s full economic resources, including government transfers and employer-provided benefits, i.e., “expanded cash income”).
These households include families with children, or older adults living on fixed incomes. They include those with incomes too low to owe federal income tax after accounting for the standard deduction and other deductions or exclusions. They also include those eligible for certain tax credits like the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC), which can reduce tax liability below zero.
A small share of higher-income tax units also pay no federal income tax each year, because they might offset their income with large deductions or losses (from a business). They might also realize income that is tax-deferred or untaxed under current law (like municipal bond interest or unrealized capital gains on held assets). Among those in the top 10 percent of earners, nearly 7 percent will pay no federal individual income tax in 2025.
The standard deduction, which nearly doubled under the 2017 Tax Cuts and Jobs Act (TCJA), also plays a role by shielding more income from taxation. For 2025, it's expected to be over $30,000 for a married couple, effectively eliminating taxable income for many.
Under current law, TPC projects that more households will owe at least some federal income tax in 2026 when most provisions of the TCJA are set to expire. The share of households paying no federal income tax will hover drop slightly from 39.6 percent in 2025 to 37.4 percent in 2026, and then gradually decline to about 33.5 percent by 2035, only if current law continues.
The fact that many households owe no federal income tax in any given year reflects policy choices. Lawmakers have used the income tax to support low-wage workers, families with children, seniors, and owners of small businesses.
Indeed, the tax code has changed significantly over the last few decades, with a growing emphasis on refundable credits like the EITC and CTC to support working families. The 40 percent who will owe no federal individual income tax in 2025 are often the people those policies were designed to support.
And the federal individual income tax is just one tax. Nearly all of us pay taxes of some kind. We can pay payroll taxes for Social Security and Medicare, state income taxes, general sales taxes, or specific sales taxes on things like gasoline. And tariffs imposed by the Trump Administration will add to our taxes paid in 2025.
In fact, many households that owe no federal income tax still pay substantial payroll taxes, often more than they receive in refundable credits. That’s especially true for working families whose earnings are low but steady.
As tax reform debates continue, it’s helpful to see how and why we owe—or don’t owe—federal individual income taxes.
