About 21,000 high earners paid no federal income tax
A new report from the IRS shows that nearly 21,000 American households with incomes of $200,000 and up didn't owe federal income taxes.

If you're like me, your first question is: How can that be?

Your possible next question: Can I get that kind of tax treatment?

Tax experts say it's not that difficult to avoid owing federal income taxes. And it doesn't require giving up U.S. citizenship, a step that Facebook's co-founder took last year, reportedly to lower his tax bill.

Most likely, no single tax move by these households — among the top 3 percent of U.S. earners — allowed them to sidestep taxes. Instead, tax experts say, these filers just had the right mix of deductions and credits.

"You can't blame the people," says Jill Senso, tax education coordinator with the Wisconsin-based National Association of Tax Professionals. "It's the way our tax system is set up that allows for it."

Well, maybe it's time to overhaul a system that now allows middle-income families with several children to owe a tax originally designed only for the rich and that permits billionaire investors to pay a lower tax rate than their secretaries.

According to the IRS, 3.9 million income tax returns in 2009 — the most recent year for which firm figures are available — reported adjusted gross income of $200,000 or more. Less than 1 percent of those — 20,752 — didn't owe any federal income tax.

It's an elite group, and one that the alternative minimum tax was created in the late 1960s to eliminate. Back then, a small number of rich folks avoided taxes through the heavy use of deductions. The AMT limits deductions, although it still allows filers to deduct charitable donations, medical expenses and losses from theft or property damage.

"We have heard this pretty much every year, that the AMT isn't doing its job," says Mark Luscombe, principal tax analyst with CCH, a provider of tax information. "It's designed to make people at least pay something. It seems like every year there are still people zeroing out their income."

The irony is that the AMT wasn't adjusted for inflation, and that over time the tax began hitting even middle-income households.

Senso says that when her friends and family — who are in the 28 percent tax bracket — hear about the rich not paying taxes, they ask how they can do the same. She tells them it takes money.

"You need income to spend it on stuff that's deductible," she says.

That's partly what presidential candidate Mitt Romney has done, says Senso, who reviewed the Republican's tax returns.

The Romneys paid an effective federal tax rate of 13.9 percent for 2010. That's typically what a couple making $86,700 would pay, Luscombe says. The Romneys' income was $21.7 million.

"He had a lot of deductions, but people with a lot of money do," Senso says.

Romney donated about $3 million to charity, Senso notes.

"He had a lot of his income from investments, so a lot of it is taxed at 15 percent," she adds

The top tax rate for regular income is 35 percent.