Tax Day Special: How Much of the Income Tax Pie Do Older Americans Contribute?



By midnight on April 18th, millions of Americans will have hit the File button in their tax preparation apps or dropped their tax returns in the mail. With 2017 tax season almost behind us, it’s a good time to take a look at taxes as they relate to Americans over 50—specifically, older Americans’ impact on the federal coffers as well as the impact taxes have on their own wallets. And there’s another reason to look at this issue now: in the coming months, tax reform promises to be a hot topic of discussion in Washington, D.C.

 

Big Contributors

Taxpayers 50 and older are big contributors to the federal budget. As chart 1 shows, households headed by a person over 50 paid 60 percent of all federal individual income taxes in 2013. That amounts to $778.9 billion of the $1.3 trillion total federal income tax collected. To put that in perspective, in fiscal year 2013, this money could cover total federal spending on national defense, elementary and secondary education, environment conservation and protection, agricultural programs, scientific research, and space exploration—some of the key government functions helping all Americans live better, more secure lives.


Source: AARP’s Public Policy Institute calculations based on the data in Statistics of Income, IRS–Tax Year 2013 Individual Complete Report, December 2015.

 

Taxpayers between 50 and 64 years of age were the biggest contributors to the federal income tax “pie,” paying 41 percent of all taxes. Taxpayers 65 and over, paid about half as much, 19 percent, but they were the smallest of the three age groups. The youngest group of taxpayers (under 50) paid 40 percent of the total federal income tax. This group, however, was the largest in size—larger, in fact, than the other two combined.

 

Story on the Ground

Now let’s swoop down from the birds-eye view to get the story on the ground—that is, from the perspective of a taxpayer. On average, older taxpayers paid considerably more than taxpayers in the youngest age group. Chart 2 shows taxpayers 65 and older paid over $10,000 on average (calculated as a mean), and taxpayers in the 50 to 64 age group paid almost $15,000. By comparison, taxpayers in the youngest age group paid about $6,000. Other metrics, such as median tax, might dull the contrast somewhat, but the main conclusion would likely stay unchanged.

 


Source: AARP’s Public Policy Institute calculations based on the data in Statistics of Income, IRS–Tax Year 2013 Individual Complete Report, December 2015.

 

The Interdependence of Ages

As we say goodbye to another tax season and prepare for a national tax reform discussion, examining these tax statistics is important both in terms of public awareness as well as for policymakers. For the general public, it is a reminder that taxes do not magically disappear once you hit 65. Many retirement income sources, such as Social Security or 401(k) withdrawals, may be taxed. It is critical, therefore, for workers of all ages to take future tax burden into account when saving for retirement and when planning a withdrawal strategy once retirement arrives. For policymakers, meanwhile, it is a reminder of older taxpayers’ major contribution to federal coffers.

But this is not a call for intergenerational conflict. Taxpayers over 50 pay more, on average, as this is often the peak earning period of their lives. Older adults also receive substantial benefits from federal programs, most notably Social Security and Medicare, which are financed to a great degree by taxes paid by younger workers.

This full circle of contributions and benefits only underscores the natural interdependence between people of all ages that is so critical in a cohesive society. Moreover, today’s seniors are yesterday’s young, while today’s young are tomorrow’s seniors. Over the course of everyone’s life there are periods when a person pays more in taxes and periods when a person pays less. This is why ability to pay taxes, not age, should continue to be the key factor in guiding our tax policy.

 

Debra Whitman is AARP’s chief public policy officer and leads policy development, analysis and research, as well as global thought leadership that supports and advances the interests of individuals age 50-plus and their families. Follow Deb on Twitter: @policydeb

Maxim Shvedov is a Senior Strategic Policy Advisor at AARP’s Public Policy Institute. He works on tax and budget issues at the federal and state levels.

 

 

NOTES for both Chart 1 and Chart 2: Some households (tax units), such as married couples, may represent more than one taxpayer. When spouses belonged to different age groups, they were assigned to an age group based on the age of the oldest spouse. E.g., a couple with spouses age 67 and 64 were assigned to the 65 and over group. Due to differences in methodology and other factors, these statistics may not be comparable to other data published by the Statistics of Income Division. Details may not add to totals because of rounding.



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Beware of These “Last-Minute” Tax Scams, Even if You Already Filed

Beware of These “Last-Minute” Tax Scams, Even if You Already Filed


As the April 18 filing deadline looms, a new wave of tax scams is heating up. Whether you’ve already filed your 2016 return – and especially if not – here’s how to protect yourself from these “last-minute” schemes currently making the rounds:

Don’t trust “update” requests. One popular phishing ploy this time of year involves emails supposedly from tax software providers such as TurboTax or TaxACT. They request users to “update” their information. “These ruses generally urge taxpayers to give up sensitive data such as passwords, Social Security numbers and bank account or credit card numbers,” warns the IRS. In addition to emails, beware of similar “update” requests by phone or text supposedly from tax software providers, banks and credit card companies.

Step lightly on TAP requests. Another info-phishing con: Emails that promise a refund that supposedly come from the Taxpayer Advocacy Panel. While TAP is an authentic volunteer board that advises the IRS on taxpayer issues, it doesn’t deal with refunds, or even have access to any taxpayer’s personal and financial information, notes the agency. There emails are from scammers phishing for SSNs and financial account information.

Know the drill. Tax-related correspondence is mailed; the IRS and other tax agencies do not initiate contact by phone, text or email. In the 2016 season, the IRS saw a 400 percent uptick in phishing and malware attempts, most commonly scam emails claiming information or a problem related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information. These fakes include an attached link, which can harbor malware, that leads to an IRS-mirroring website run by scammer. Note the tinkered address such as “irsgov” (without the dot between “IRS” and “gov”), irs.net, or a similar variation.

Meanwhile, the IRS imposter phone scam is alive and well, preying on taxpayers including recent immigrants. In addition to the usual ploy – threats of arrest, deportation or property seizure over an allege debt – a new spin has IRS imposters promising a refund, a move to trick targets into sharing private information. If the phone isn’t answered, the scammers often leave an “urgent” callback request. Ignore it, instead calling the IRS at 800-829-1040.

Choose preparers to not lose. Good luck finding a preparer this late in the game, but if you’re still looking, some tips to finding one who’s reputable (if only for next year): Check this IRS directory for credential preparers, and here for organizations provided free help. The AARP Foundation’s Tax-Aide program offers free, individualized tax preparation for low-to moderate-income taxpayers at more than 5,000 locations nationwide. If your adjusted gross income was less than $64,000 last year, you qualify for the IRS Free File program. Beware of preparers (especially with temporary storefronts or conduct business at your home) who promise overly generous refunds, want you to sign a blank return, say that fees are based on the size of your refund claim “secrets” loopholes.

Accountants under attack. Let your numbers-cruncher know of these schemes against them: In a new scam, the IRS reports that fraudsters pose as a client (namely, you), asking tax preparers to make a last-minute change to their refund destination, often to a prepaid debit card. Tax preparers are urged to verbally reconfirm information with clients should they receive last-minute email request to change an address or direct deposit account for refunds.

Another scheme: Emails to tax preparers that warn they need to update or access to their own tax preparation software via a bogus “unlock” link that leads to a fake web page, asking for their user name and password so cybercrooks can access client information. Ruses also include other tax prep provider-posing ploys and attempts to steal data such as PTINs, EFINs or e-Service passwords.

For information about other scams, sign up for the Fraud Watch Network. You’ll receive free email alerts with tips and resources to help you spot and avoid identity theft and fraud, and keep tabs of scams and law enforcement alerts in your area at our Scam-Tracking Map.

 

 

 



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