Families pay more in income taxes

Published 12:00 am Saturday, November 7, 2009

Alabama families living at or below the poverty line pay higher income taxes than any other state.

According to the U.S. Census Bureau, Pike County had an estimate population of 30,381 in 2008.

Of the more than 30,000 residents, 27 percent of them are below the poverty line.

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That equates to a little more than 8,000 people.

The median household income for 2008 was estimated to $25,817.

A national study released earlier this week by the nonpartisan Center on Budget and Policy Priorities said a family of three earning at the federal poverty level of $17,165 will pay $333 in income taxes to the state, which is the highest in tax rate in the country.

According to Gibson and Carden Accountant Ross Jinright these families probably pay zero federal tax.

“Everybody pays 5 percent state income tax,” Jinright said.

The study said an Alabama family of four earning at the poverty line of $22,017 will pay $483, which is also the highest tax rate in the country.

For many years, Alabama had the lowest threshold for taxing the poor.

Changes enacted for 2007 dropped Alabama to third in the center’s rankings.

But the report showed Alabama is back to No. 1 in some categories and on the verge of being tops in other categories because other states have been reducing their taxes on the working poor.

“In Alabama the tax threshold has gone up. It’s a moving target depending on how big the family is,” Jinright said. “When people get taxed it depends on if they are single, married and how many dependents they have.”

Despite Alabamians having to pay state income tax, many are probably getting a federal refund.

“Actually they are probably getting an income tax credits depending on the age of the children and other credits available,” Jinright said.

“They are probably actually getting refunds.”

The study said the level where a single-parent family of three starts paying Alabama’s income tax is $9,800, the lowest threshold in the country. Montana ranks at close second at $10,000, but the majority of states begin taxing families who make above the poverty line.

A two-parent family of four begins paying income tax at $12,600. Only Montana is lower at $12,200.

Still, the state of Montana adjusts its rate for inflation, while Alabama doesn’t. With that, Alabama will soon move back to No. 1.

But, inflation-adjusted tax liabilities may not always be beneficial.

Poor families of four saw their inflatioin-adjusted liabilities increase by 46 percent in Mississippi, 45 percent in Arkansas and 18 percent in Missouri.

The state is one of 16 states that levies a state income tax on a family of four making below the federal poverty line.

According to the study most states set income tax thresholds high enough to exempt a family of three from taxes where the employed family member works full-time at minimum wage, but seven do require them to pay.

Alabama, Georgia, Hawaii, Illinois, Montana, Ohio and Oregon all impose this tax on these families.

California has the nation’s highest threshold.

There is no income tax on a family of three making under $45, 900 or a family of four making under $48,300.

The levels set by California are more than twice the poverty lines for families those sizes.

Some 14 states not only steer clear of taxing poor families, but also offer tax credits that provide refunds for families with income at the poverty line.

The study’s author, Phil Oliff, said taxing the working poor undermines their efforts to work their way out of poverty.

“It is especially harmful in the current recession, when people are already struggling just to get by,” he said.