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Pay Negative Taxes

pay negative taxes

I’ve shown you how easy it can be to pay no federal income tax in retirement. In fact, it’s not difficult to pay negative taxes, that is, to have the federal government owe you money.

That’s exactly the situation the fatFIREd couple behind FI Heroes have found themselves in. After filling out their 2020 tax return, they not only owe nothing; they are owed thousands of dollars!

Stimulus money played a role, but even in a “normal” year, they would come out looking like bandits. Read on to see how they have plenty of wealth but pay negative taxes. For what it’s worth, in order to accumulate the millions of dollars that they have, they undoubtedly have paid plenty of taxes already.

This Friday Feature was originally published on FI Heroes.


negative taxes


The plan to pay no taxes actually worked!

The US Tax code is a strange thing.  In 2020, our income was about $56K. For the first time since we were children, we paid zero state and federal taxes for the entire year.  Even when we were full-time students working part-time jobs, we paid taxes, and we made a lot less back then.

Yes, our 2020 tax rate was ZERO percent.  Well, that’s not entirely true.  Turbo Tax says that we are getting a check for $4,416.


2020 Tax Refund


So not only did we pay no taxes, we are also getting a big fat check.

When stimulus checks for COVID were going out last year, the IRS only had our 2019 and 2018 returns on record. Those returns estimated that we were likely still making too much to qualify for anything.  However, since we retired early, our income has dropped dramatically. This allows us to collect in one swoop all of the stimulus money we missed out on in 2020 when our income was only $56K.

For us, $3,600 is stimulus. The extra $800 is made up of additional credits for our health care insurance premiums which we overpaid for during the year.  As a couple making less than $67K, we qualify for health insurance subsidies due to the Affordable Care Act.  When we enrolled in the ACA website, we overestimated our 2020 income so ended up receiving slightly less credits throughout the year.  The final comparison between our original estimate and what we actually made means that we get the difference in credits in our return. The credits we received throughout the year lowered our insurance by $4,300.


To summarize our 2020 taxes/credits:


2019 – 2021 realized and estimated tax credits


With all these credits, we have a negative effective tax rate that will continue into 2021 as we will likely qualify for the next stimulus and continue to receive ACA subsidies in 2021.





When we decided to become nomads, we realized that we could call “home base” just about anywhere.  One of our requirements for our new home was to not have to pay income taxes if at all possible. For that and a few other reasons, we decided to relocate to Florida.



By quitting W-2 work and not making any money off of our blog, the only income we get is from our investments.  We set up our after-tax investment account to generate about $55K(ish) a year.

The federal tax brackets for qualified dividend income has a zero percent income bracket that goes to about $100K for a married couple when you also apply the standard deduction.  Our income is way less than that, so we shouldn’t be paying any federal taxes until the tax code changes.



A married couple making less than $68,900 in 2019 will qualify for the ACA subsidies which for us was substantial.  We still have plenty of room between this limit and our actual income of $56K. Check out our latest article on how we accidentally broke ACA when we fell in to a gray area.



We didn’t plan for a pandemic or the stimulus check response from the federal government.  By targeting to keep our income lower than $68,900 in order to qualify for ACA subsidies, we also qualified for the series of stimulus payments.  For a married couple these payments phase out for incomes above $150K.  We are well below that requirement.




Let’s be real, the tax code is not a fair system.  Folks with more assets and abilities to shift their income type can react easier to changes than most of society.  This allows for them, in some cases, to pay the least taxes possible for their own situation.

We have over $3.3MM in investment assets.  We are both under 40 years old and we stopped working our corporate jobs two years ago.  When we were earning high salaries throughout our careers, we were consistently paying over $60K just in taxes each year.  That’s right… $60K just in taxes alone. Even last year, we still paid $41K in taxes due to the generous severance packages our companies gave us on the way out the door.

I’m not complaining, just stating that over our short careers, we paid more in taxes than the average American has and possibly will pay during their lifetime.

While neither of us started out with much and had to sacrifice to get to where we are today, we do recognize that we are in a place of privilege and within reason can shape our life into whatever we desire.  This allows for lots of options which is something we are grateful for.

2020 was a rough year for a lot of people.  I’m sure the legislators who hastily wrote up the COVID relief bills did not intend for multimillionaires who retired early to also get checks.

Legislators are currently considering lowering the income requirements for the next bill.  Even with these lower income requirements, we would still likely qualify as our income is “only” $56K.

It was a nearly impossible task to help all of the “right” people without also helping a small amount of the “wrong” people.  The only way to block us out of the stimulus payments would have been to also have a check against assets.  This would have added a layer of complexity to the bill that would have made it even more difficult for timely payments to go out from the IRS to those that desperately needed the money to pay for food/shelter.

The US Tax system is intended to be progressive, which means that higher earners should be taxed at higher rates than lower earners.  Benefits programs like ACA are also intended to target lower income earning individuals and phase out for higher earners.

In addition, there is a tradition to favor investment income over W-2 earned income because the theory is that this income was already taxed before it was invested.  Large corporations want dividends to be favored in order to justify equity share prices.

Both liberal and conservative interests over the decades have led our tax system to end up here.  We simply redesigned our lives to bullseye the intersection of the Venn diagram.

The sweet spot of low income and Investment Income


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A little, but not enough to give it all back to the treasury.  We took a lot of steps to get to this point.  We sold all of our possessionsWe quit jobs in highly lucrative careersOur spending is kept to a reasonable minimum.  The things we care about simply do not cost that much.

The amount of net income we got this year and will get over the next few years will be a small fraction of the taxes we have already paid up until this point.

The $3.3MM investment pile we have accumulated will likely multiply over the next forty to fifty years.  (That’s the plan at least).  It is likely that not paying taxes is only a temporary situation.  If we are fortunate, our income will eventually exceed the limits for ACA and we will once again enter into a higher tax bracket.

The tax code will also once again change and then change again.  If a wealth tax is introduced and we qualify, that would completely change the game.  As we are highly dependent now on investment income, changes to this income type would also dramatically impact us.

It is impossible to predict what will happen over the next few decades.  The best we can do is to adjust accordingly as these changes firm up.

When we get up in years, we aspire to enter into philanthropy mode and pick a series of causes we care about that will do the most net good for our world.  Knowing the compounding impact of investments over forty years, it is likely that this will end up being a reasonably large contribution to civilization.  The less taxes we pay now, the higher this nest egg will become.




The mission of this blog was to test the concept of FIRE (Financial Independence Retire Early) and provide real-world math and accounts of our experiences throughout our journey.

Paying no taxes was a theoretical possibility years ago when we were building the plan we are currently executing.  Plugging in our values into TurboTax validates to us that yes, you can actually pay negative taxes while also receiving a reasonable income.

Not working and living a minimalist lifestyle is far cheaper than we anticipated.  Even though we received more than our target in investment income, we only spent half of it last year.  Yes, COVID limited our spending options, but I’m far more confident that $55K per year allows for a lifestyle of abundance for us.

FIRE is real and with enough luck and determination, it can be for you too.

We wish you the very best on your journey.



What amount of taxes do you plan to pay once you retire? Did you think you would ever pay negative taxes? Comment below.

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4 thoughts on “Pay Negative Taxes”

  1. The US Tax code is pretty amazing in this way. I am hoping for a $0 tax year this year myself.

    Congrats on your success and I think it’s great you guys are living the life you want with plenty of room to breath!

    I would love for you to be able to grow your nest egg and be able to do more philanthropy. Cheers!

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  3. I think we need to fix the part of the tax code that allows a country as indebted as we are to send $4,500 back to people with $3.3 million in assets. Paying no taxes is one thing, getting a refund when the federal budget is in surplus is one thing, but this is…eh. No personal offense intended; I am hating the game indeed, not the player.

    • I agree, except I would extend that to everyone regardless of income levels. You can’t get back more than you paid in.
      Let those who shout ‘tax the rich’ be forced to pay something at least.

  4. The quote “Don’t hate the player, hate the game” comes to mind. I don’t think you need to apologize for paying what you do (or perhaps what I should say is “what you don’t”), and for playing by the rules.

    I am old enough to remember when Steve Forbes ran for president (in 1996) on the flat tax. I still feel that a consumption-based tax would have considerable societal benefits, reduce complexity, and reduce rampant tax cheating.


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