How much cash can you make without paying taxes

If your income falls below $75,000 for 2021, there's a chance you'll end up paying no income taxes on it.

On average, taxpayers in that category will have no tax liability after accounting for deductions and credits when they file their 2021 tax returns next spring, according to recent estimates from the nonpartisan Joint Committee on Taxation. Those households also may get money back from the IRS.

Even for taxpayers earning $75,000 to $100,000 in 2021, the average income tax rate paid will be 1.8%.

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"The main drivers for nonpayers are the [earned income tax credit] for lower earners and the child tax credit for families with children after accounting for the standard deduction," said Garrett Watson, a senior policy analyst at the Tax Foundation.

For 2021, the standard deduction for individual tax filers is $12,550; for married couples filing jointly, it's $25,100.

While having a zero tax bill is not a new phenomenon, it may be more pronounced this year due to a variety of temporary tax code changes, said Elaine Maag, principal research associate at the Urban-Brookings Tax Policy Center.

In addition to the Covid stimulus checks of up to $1,400 per adult and dependent that were authorized in the American Rescue Plan, several tax credits were expanded. They include the earned income tax credit and the child tax credit (see details below). Both credits are considered valuable, given that they are refundable — meaning that even if your tax bill is zero, you can get some or all of the credits refunded to you.

The congressional projections do not mean everyone earning less than $75,000 will pay nothing in taxes.

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"There are plenty of people in that income group that will owe taxes," Maag said. "Those are the averages for everyone."

Additionally, owing nothing to the IRS on your income doesn't mean paying zero federal taxes.

For example, if you earn money from a job (versus from, say, investments), you pay taxes into Social Security and Medicare. Those so-called payroll taxes equate to 7.65%, which your employer withholds from your paycheck (and contributes the same amount — 7.65% — to those programs on your behalf).

If you are self-employed, you pay both shares yourself, or 15.3% (although you can deduct half of that elsewhere on your tax return).

Individual incomeProjected average income tax rate, 2021Under $75,000<0%$75,000-$100,0001.80%$100,000-$200,0005.70%$200,000-$500,00013%$500,000-$1 mil20.80%Over $1 mil25.80%

Source: Joint Committee on Taxation

About 53% of Americans had an annual household income of less than $75,000 in 2019, according to the latest data from Statista. Median household income in the U.S. that year was about $68,700, according to the Federal Reserve Bank of St. Louis.

"The group not paying federal income taxes in any given year tend to be moderate income with children, as well as older people, who may not have earnings that they are paying tax on," Maag said.

As for details of the credits: The child tax credit is enhanced for 2021 in several ways, including by raising the per-child payment to $3,000 from $2,000 for families with income below certain thresholds (phaseouts begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples), with an extra $600 for children under age 6. Children age 17 also qualify for the first time.

Those child tax credits will be advanced via direct payments beginning in July.

The earned income tax credit for childless workers also has been expanded by boosting the maximum credit in 2021 for that cohort to $1,502 from $543, according to the Tax Foundation. The benefit would be realized when taxpayers file their 2021 returns in spring 2022.

The bill also raises the income level (to $9,820 from $4,220) at which the earned income tax credit reaches its maximum, and changes the phaseout to begin at $11,610 instead of $5,280 for individual tax filers. The ages for qualifying for the credit also are changed for this year: The minimum age is 19 instead of 24 and the maximum age of 65 would be eliminated.

In Singapore, most of us who are earning an income are paying taxes, as part of our contribution to the nation’s growth. Filing taxes can sometimes be complicated, but it doesn’t need to be. We’ve put together some answers to frequently asked questions to ease your yearly tax-filing exercise. 

Who needs to pay income tax in Singapore?

According to IRAS, “all individuals earning, deriving or receiving income in Singapore need to pay income tax every year, unless specifically exempted under the Income Tax Act or by an Administrative Concession”.

Generally, as an individual, you will be required to pay tax for any particular Year of Assessment (YA) under the following circumstances:

• You derive or receive income in Singapore.
  • Income can be from a full-time job, as a sole proprietor, freelancer etc., or investments in Singapore.
• You are working outside Singapore, with your employment status under Singapore 
• You are earning a gross income of $22,000 or more in a year; or/and
• You are a Singapore Citizen (SC) or Singapore Permanent Resident (SPR) who resides in Singapore except for temporary absences; or
• You are a Foreigner who has stayed / worked in Singapore (excludes director of a company) for 183 days or more in the year preceding the YA.

What is taxable and what isn’t?

Income can be taxable or non-taxable. Taxable income refers to income that is subject to taxation. Non-taxable income does not need to be taken into account during the taxation process. Below are some examples of taxable and non-taxable income. 

• Employment Income
• Salary Bonus
• Director's Fee
• Self-employment income
• Rental Income

• Windfalls, such as winnings from lottery
• Capital gains from stocks and property investments
• Pensions
• CPF Life Payouts

How much income tax do I need to pay?

Income tax is generally based on one’s income bracket. Singapore’s personal income tax rates for resident taxpayers are progressive. This means that the higher your income, the higher your tax – currently, the highest income tax rate stands at 22%. Below is a table of personal income tax rates based on income: 

0
2%

This information is correct at time of publishing. For more updated information, visit the IRAS website.

Note: You can download an income tax calculator from the IRAS website to get a better idea of how much taxes you will need to pay.

Taxpayers can also expect tax reliefs. Typically a result of government programmes or policy, tax reliefs help to reduce the amount of taxes that you have to pay. In Singapore, some common tax reliefs or deductions you may qualify for include the following: 

• Parent Relief
• Child Relief
• NSman Relief
• Course Fees Relief
• Life Insurance Relief
• Central Provident Fund (CPF) Relief
• Supplementary Retirement Scheme (SRS) Relief
• Deduction on donations

Do note that there is a limit to the amount of tax relief you can receive – for personal income tax in Singapore, the tax relief currently stands at $80,000. 

When do I need to file for income tax?

Tax can be filed starting from the end of the first quarter of the year – you can do it electronically via the IRAS website from 1 March to 18 April every year. The assessment is for income earned in the preceding year – for example, in 2022, you would be filing for taxes for the income you received or derived in 2021. If you prefer paper filing, you will have to submit your completed tax form to the IRAS headquarters by 15 April. 

How do I file income tax in Singapore?

There are two ways to file taxes – electronic filing and paper filing. Most taxpayers file their taxes online. Filing for income tax electronically is relatively easy:

STEP 1: Prepare the necessary resources. 

Make sure you have these ready:

• SingPass / IRAS Unique Account (IUA)
• Form IR8A (if your employer is not participating in the Auto-Inclusion Scheme)
• Particulars of your dependents (e.g. child, parent) for new relief claims
• Details of rental income from your property and other income, if any
• Business Registration Number / Partnership Tax Reference Number (for self-employed and partners only)

STEP 2: Log in to myTax Portal

• Log in to myTax Portal with your SingPass / IRAS Unique Account (IUA). 
• Click on "Individuals" > "File Income Tax Return" and follow the instructions. 

STEP 3: Key In or Verify your details

Key in details such as your income, deductions and reliefs. If your organisation participates in the Auto-Inclusion Scheme, these details will be pre-filled. You will simply need to verify the information. 

STEP 4: Update existing tax reliefs

If you qualify for additional or new tax reliefs (e.g. relief for newborn child), please include your claims. If you previously claimed any reliefs that you no longer qualify for (e.g. course fees), you will need to remove them.

STEP 5: Declare other sources of income, if any. 

If necessary, declare your other sources of income (e.g. rental income). 

STEP 6: Receive acknowledgement receipt

You will see an acknowledgement page after successfully e-filing. Save or print a copy if you can.

You can find a more detailed process here.

For those who are unable to file taxes online, IRAS will send them the relevant paper tax return between February to March.

How can I pay for income tax in Singapore? 

One of the most common questions taxpayers may have is how to pay income tax in Singapore. Most taxpayers pay their taxes via GIRO, via a one-time payment, or 12-month interest-free instalments. You can make a payment via electronic payment modes such as AXS, internet banking, phone banking, mobile banking (PayLah and PayNow apps) and SAM, or head to a post office to pay using NETS.

Taxpayers who face difficulties with their tax payment may apply for a longer payment plan via myTax Portal.

What happens if I miss the deadline to file my tax? 

You will incur a composition amount and may be summoned to Court for late or non-filing of taxes. Appeals for a waiver of the composition amount must be made online via myTax Portal and is subject to approval.

IRAS will send you reminders nearer to the deadline, so do try to file your taxes ahead of time. If you need more time to file your income tax return, do apply for an extension online via myTax Portal.

What happens if I fail to pay my taxes on time? 

You have one month from the date of the Notice of Assessment (NOA) to pay your taxes. Should you fail to make payment before the stipulated date, a late payment penalty of 5% will be imposed on the unpaid tax. If continue to default on payment, you may face an additional penalty of 1% per month – if tax remains unpaid 60 days after the 5% penalty was imposed. This penalty will be imposed for each month payment is not made, up to a maximum of 12% of the unpaid tax.

Appeals for a waiver of the late payment penalty must be made online via myTax Portal and is subject to approval. Further enforcement actions will be taken to recover the taxes if it continues to remain unpaid.

If you are unable to pay the tax in full, you can apply to pay via instalments – monthly payments via GIRO for up to 12 months, interest-free.

Conclusion

Filing taxes is part and parcel of adult life; it can be complex, but it gets easier once we have familiarised ourselves with the system. In general, just remember – if you are earning an income in Singapore of more than $22,000 per annum, you’ll need to pay taxes. You’ll also get reminders from IRAS via mail and text to file your taxes, so, try to do it as early as you can – in this way, you have ample time to seek help or rectify mistakes if necessary, as well as avoid any additional hassle or fees. 

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