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Poverty and Income Tax Entry Threshold

Elaine Maag

Published: September 07, 2011
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Abstract

The tax entry threshold is the income level at which a person begins paying federal income taxes. Unlike payroll taxes, income taxes do not start at the first dollar of earnings. Rather, the federal income tax system exempts an amount of income from taxation based on the type of tax unit (married or unmarried, with or without children) and the number of people in the tax unit. Tax credits can raise the tax entry threshold further. This article compares the tax entry threshold to the poverty line providing one way to judge how the tax system treats low-income families and providing a comparison of the relative generosity of the income tax for families with and without children.

Reprinted with permission of Tax Analysts. The text below is an excerpt from the complete document. Read the entire report in PDF format.


The tax entry threshold is the income level at which a person begins paying federal income taxes. The federal income tax system exempts an amount of income from taxation based on the type of tax unit (married or unmarried, with or without children) and the number of people in the tax unit. Tax credits can raise the tax entry threshold further and include credits that encourage particular activities such as the earned income tax credit (work); credits aimed at supporting families such as the child tax credit (CTC); and credits aimed at subsidizing costs of working such as the child and dependent care tax credit. For the calculations in the table, only general provisions available to everyone with earnings, children, and qualifying income are used.

The poverty line aims to measure the minimum amount of income a family needs to achieve an adequate standard of living. The poverty level increases with family size to recognize the greater needs of larger families. Comparing the tax entry threshold to the poverty line provides one way to judge how the tax system treats low-income families.

End of excerpt. The entire report with graphs and footnotes is available in PDF format.