Download Fiscal Fact No. 229

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.