Yahoo Finance Millennials vs. Gen Z: Who Pays More in Taxes?
Each generation has their own joys, challenges and milestones. The economics of each generation are also different. Although tax rates are the same regardless of your age or stage in life, the amount you pay can be quite different, typically because of your income and the deductions that can be available to you.
So, who pays more in taxes — millennials or Gen Z?
Explore More: Billionaires vs. the Middle Class: Who Pays More in Taxes?
Read Next: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing
The Average Tax Burden of Millennials
Millennials were born between 1981 and 1996, so they are now between 28 and 43 years old. At this stage of life, they may be married, have children and be homeowners. They are also in or approaching their peak earning years.
The U.S. Census Bureau says that the average salary for a millennial is $47,034. The average millennial household makes $69,000 per year, according to Pew Research. This overview examines the tax burden for an average couple with this income.
A millennial couple is likely to have children and, therefore, can take advantage of the Child Tax Credit of $2,000 per child. Since this credit is available to taxpayers who are married filing jointly with income under $400,000, it will reduce the taxable income of the average millennial couple with two children to $65,000.
Many millennials have student loan debt. They can take a tax deduction for the interest they pay on that debt, up to $2,500, as long as the income is less than $155,000. This deduction further reduces their taxable income to $62,500.
Homeowners can deduct the interest they pay on their mortgage. If this millennial couple pays $500 per month in interest on their mortgage, their taxable income would be further reduced by $6,000 to $56,500.
Of this $56,500 in taxable income, the first $22,000 is taxed at 10% (for a tax burden of $2,200) and the remaining $34,500 is taxed at 12% (for a tax burden of $4,140). The millennial couple’s total tax burden is $6,340.
For You: 9 Strategies Americans Are Using To Minimize the Taxes They Pay on Retirement Savings
The Average Tax Burden of Gen Z
Gen Zers were born between 1997 and 2012, so they are now between 12 and 27 years old. This is a pretty wide range in terms of life stage, so this overview will focus on the higher end of the range — the tax burden of most 12-year-olds is zero.
According to TransUnion, the average Gen Zer aged 22 to 24 is making about $45,500. Because they’re less likely to have children or be homeowners, they are unlikely to be able to take advantage of the tax breaks that come with those two life milestones.
However, they are likely to have student loan debt, so the interest deduction of $2,500 per year would reduce their taxable income to $43,000. Of this $43,000 in taxable income, the first $11,000 is taxed at 10% (for a tax burden of $1,100) and the remaining $32,000 is taxed at 12% (for a tax burden of $3,840). The Gen Zer’s total tax burden in this situation would be $4,940 — keep in mind that this rate jumps to 22% on income over $44,725.
The average millennial couple pays more in taxes than the average Gen Z single, although not by as much as you might think. And if you divide the tax burden of the couple by two, a single Gen Zer is paying significantly more in taxes than a single millennial, despite the millennial’s higher income. Once Gen Zers start to have kids and buy homes, this will likely change.
More From GOBankingRates
6 Things to Try This Week if You're Behind on Your Savings Goals
4 Reasons Retired Women Need More Money Than Men -- And What To Do About it
This article originally appeared on GOBankingRates.com: Millennials vs. Gen Z: Who Pays More in Taxes?
