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High-Income, No-Tax Returns Dropped 8% in 2010, IRS Says

The number of U.S. households that reported adjusted gross income over $200,000 and paid no income taxes declined by 8 percent in 2010, according to Internal Revenue Service data.

The IRS’s annual report on high-income, no-tax returns today found 19,003 such returns, down from 20,752 in 2009. That represents 0.44 percent of households with incomes over $200,000. The IRS said 2010 was still the third-highest year on record since the agency began compiling the data in 1977.

Such taxpayers typically use multiple tax breaks to eliminate their U.S. tax liability, including deductible charitable contributions and medical expenses, the report said.

These taxpayers also didn’t pay the alternative minimum tax, which was designed to prevent high-income households from legally escaping taxes. That tax disallows some but not all breaks. Tax breaks for theft losses and mortgage interest, for example, aren’t affected by the AMT.

The IRS uses multiple measures of income and tax liability in the study. Depending on which one is used, between 0.19 percent and 0.75 percent of high-income households don’t pay income taxes, including some who paid no income taxes anywhere in the world.

By design, the U.S. tax code eliminates income taxes for many low-income and middle-income households. According to the report, among households with incomes under $50,000, 55 million, or 59 percent, didn’t pay U.S. income taxes. Non-payers made up 41 percent of all households.

Among households with adjusted gross incomes between $100,000 and $200,000, 0.9 percent didn’t pay U.S. income taxes.

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