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Are some Americans paying income tax they don't owe?

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Seth Perlman/AP/File

(Read caption) A 1040 tax form along with other income tax forms are seen at the entrance of the Illinois Department of Revenue in April 2012 in Springfield, Ill. According to some estimates, US taxpayers who withhold from their paychecks but don't file returns could be missing out on significant refunds.

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Headline got your attention? No, it isn’t a come-on for a new tax avoidance scheme. Rather, it reflects an interesting but little known problem with the federal income tax system: People who have tax withheld from their paychecks but, for some reason, don’t file returns. For many, ignoring their 1040 means they are paying tax they don’t owe.

According to one estimate, in 2003 more than 8 million people had almost $16 billion in taxes withheld but did not file 1040s. Not only did many pay tax they didn’t owe but some likely missed out on refundable credits that could have improved their well-being.  

To some degree, this is the flip side of another set of numbers that get far more attention—those American who pay no federal income tax.  The other day, the Tax Policy Center estimated that about 43 percent of Americans will be off the federal income tax rolls in 2013, down from 47 percent in 2009.

 

Nearly three in four non-payers file 1040s. Nearly all pay some tax—sales taxes, payroll taxes, excise taxes and the like. And most have income taxes withheld from their paychecks but get these payments returned from the government in the form of refunds or credits.

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