Many people think that they will need to file an income tax return when tax time rolls around regardless of how much money they made. That is simply not true! Whether or not you need to file a return is based on your gross income and filing status for the year, but you might be surprised to learn that you do not need to file a return at all in some cases. So, when do you need to file and when can you just not worry about it? Just because you are not required to file for a specific tax year doesn’t mean that you shouldn’t. In some cases, you might need to file a return with the IRS to get a refund that is due. Keep reading as we will tell you everything that you need to know about filing your income taxes.
Do You Have To File Taxes Every Year?
Your filing status and gross income will determine whether or not you need to file taxes each year. If you earn more than the standard deduction for your status, then you will need to file a Federal tax return. There are also some special cases that might require you to file taxes even if you earned as little as $5 during the year. For instance, the IRS filing requirements state that all self-employed individuals must file a return regardless of gross income. In addition, if you are married filing separately, then each spouse will need to file a return if they had income over $5 for the year.
We will discuss the income limits and requirements in more detail in the next section, but it is important to note that many taxpayers choose to file a return even if they are not legally required to do so. There are many tax refunds and credits available that you might miss out on if you choose not to file a return. You should also remember that your state has filing requirements that might differ from the IRS requirements. Even though the IRS may not require a return, you might still be required to file state taxes. Filing taxes is not extremely difficult, so make sure that you follow the rules when the tax deadline comes around. Failing to file a return can lead to lost tax refunds and even penalties and fees.
IRS Income Tax Return Filing Requirements
So, how much do you have to make to file taxes? There are a couple of IRS publications that detail the requirements for filing a Federal tax return. Those are IRS publication 17 and publication 501. Generally, there is no need to file a tax return if your gross income was less than the standard deduction. In 2021, the standard deduction for a single individual less than 65 years old was $12,550. As long as you earned less than this income threshold last year, there would be no need to file a Federal income tax return. However, you might still choose to do so if you are due some money back. For instance, suppose you earned $10,000 but had $500 in Federal taxes withheld. You would be due a refund of the entire $500. Failure to file a return means that you would not get this refund back.
What about older individuals who are receiving Social Security benefits? Most people who only receive Social Security will not be required to file a return because their gross income will not be high enough. However, if you are married filing separately, then one of you will need to file a return. In addition, if you had other income like interest income or income from an IRA or retirement account, then you might be required to file a return.
Children or dependents generally do not have to worry about filing returns because they usually have little to no taxable income. However, there may be instances where a dependent child is old enough to work a job and earn income. The child might be required to file if their gross income exceeds $1,100. Self-employment almost always means that you will be filing an IRS tax return. Those individuals will need to file a return if they have any self-employment income to report on their tax forms. If you are receiving unemployment benefits during the year, you usually do not have to worry about a tax bill in that case. The IRS and most states will exempt a large sum of unemployment benefits from income tax requirements.
If you have any questions about whether or not you need to file taxes, then you should always consult a tax professional. Failure to file can be illegal, and it can cause you to miss out on tax refunds owed to you. In addition, many recent payments regarding stimulus checks during the Coronavirus pandemic have been based on recent tax filings. Failure to file taxes might result in a delay of stimulus payments or not payment at all.
State Tax Filing Basics
You might be wondering, “Do I have to file a tax return in my state?” Many states have rules that are very similar to the IRS. In most cases, if you are not required to file a Federal return, then you will not be required to file a state return either. However, make sure that you are familiar with the rules in your state. You might also run into some special situations that require you to file a return in more than one state. If you live in one state, but work in another, then you will probably have to file a return in both of those states. Some states have no state income tax requirements, so you never have to worry about filing an income tax return in those states. The biggest thing is to know the rules where you live and work and make sure that you follow those rules when deciding whether or not you need to file a return.
How To File Your Tax Return
The process of filing an IRS 1040 is easier now than ever before. There are many software programs available that will complete all the necessary forms for you. You simply need to fill in the details from your W2 along with your personal information. The software will perform all the calculations and prepare the necessary forms for filing. Now, if you still prefer to use the old method of manually completing the paperwork, then you can still go that route too.
In that case, you would complete all the paperwork and perform all the calculations by hand. Make sure that you include the proper identification number and double check your calculations. You will also want to make copies of the forms before submitting them. Once you drop your returns in the mailbox, then they are considered filed! If you prefer making things easy, then e-filing is the way to go. When you are ready to e-file your taxes, you simply need to click a few buttons on your computer. The software does all the hard work, and your forms are electronically submitted to the IRS and to your state.
In addition to making things much easier, e-filing also allows you to get your refund or tax credit payments faster. You simply include your bank account information on your return. It gets submitted to the IRS, and they use this information to direct deposit your refund. This is the quickest way to get a refund, and the majority of filers today use this method. Many of the tax software companies also guarantee their calculations, so you do not have to worry about any miscalculations costing you money on your return! So, when do you have to file taxes? Generally, the filing deadline is April 15.
Rules For Non Citizens
Just because you are not a citizen does not mean that you are free from filing taxes. Non-citizens living in the United States and earning income are likely to be required to file taxes as well. The requirements depend on the source and amount of the income, tax filing status, and the country in which you are a citizen. To file taxes, you will need a valid individual tax identification number (ITIN). This is usually a Social Security number, but the IRS will assign you an ITIN if you do not have a Social Security number.
In some cases, you might even be required to file estimated taxes with the IRS depending on your job situation in the United States. You can visit IRS.gov to learn more about the special tax rules regarding foreign exchange students. These rules also apply to teachers and researchers as well. There are several special exemptions that allow these individuals to earn income without the need to file a tax return.
Tax Refund Considerations
Nobody likes filing a tax return, but everybody likes to get a refund! As we mentioned before, you might encounter situations where you are not required to complete an IRS tax filing, but you may choose to do so in order to get a refund to which you are entitled. Here are a few refunds for which you may be eligible, so this may help you decide whether or not to file a return for the year.
Child Tax Credit
If you have children, this credit alone might make it worth filing taxes. If you are the head of household, then you may be due a credit of up to $3,600 per dependent child depending on the child’s age. For families with multiple children, this is a huge benefit and can lead to a large tax refund. Make sure that you know how this credit affects your household so that you can take full advantage of it.
American Opportunity Credit
If you are currently paying for college expenses, this tax credit can help you cover some of those costs. This credit is for people who are paying for their first four years of higher education. You can get as much as $2,500 per year per eligible student, so this credit can add up quickly – especially if there are multiple students in the household!
Lifetime Learning Credit
This credit can be worth up to $2,000 per tax year. It can be used to help pay for expenses related to undergraduate or graduate degree programs. In addition, it can even be used for job related training. Unlike the American Opportunity Credit, there is no requirement that it be used for your first four years of higher education. This credit allows you to continue learning and getting a tax break for your schooling.
Child and Dependent Care Tax Credit
This tax credit can be used to help pay for child care expenses while the parent works. You might be able to claim up to $6,000 in eligible expenses, so this can be a big credit. Unlike the earned income tax credit (EITC), this is not just for low income households. You can likely take advantage of this credit even if your income is in a higher tax bracket.
Penalties For Not Filing Taxes
If you do not request a tax extension or file your taxes by the due date, there can be some stiff penalties. Not only might you miss out on some premium tax credits, but you might also owe some fines and penalties. The penalty can be up to 5% of the unpaid tax which was due. In addition, these penalties can add up each month that your return is late. So, the later you wait to file, the larger the penalties will become.
If you simply choose not to file, the IRS will likely eventually come knocking on your door. The IRS has the authority to contact you and impose the penalties mentioned above. You might end up in court owing a hefty bill by the time everything is said and done. If you are required to file taxes, then you should go ahead and do so in a timely manner.
The Bottom Line
Just because you earn money during the year does not necessarily mean that you are required to file taxes. However, the amount that you earn and your filing status can determine whether you will have to file a return or not. Just because you are not legally required to file a return doesn’t mean that it will not be a good idea. You might be due some money back, and you would hate to miss those refundable tax credits simply because you chose not to file your tax return. Talk to your tax professional and determine whether you should file a return this year or not.
Frequently Asked Questions
How much do you have to make to file taxes in 2021?
Maybe you’re wondering, “Do I need to file taxes?” It depends on your filing status. For an individual under 65 filing individually, the minimum income to file taxes is $12,550. However, if you are reporting self-employment income, then you will need to file a return at a much lower level. If you are married and filing separately, then you are required to file even if you had as little as $5 of income. As we mentioned before, just because you don’t have to file doesn’t mean that you should not file. If you earned less than the standard deduction of $12,550 but you had federal taxes withheld, then you should file so that you can get your refund of that amount back.
Do you have to file taxes for an LLC?
Yes, small businesses are required to file taxes just like individuals. Your LLC will need to file taxes regardless of how much income it had during the year. Filing taxes for a business can get more complicated, so make sure that you get the help of a tax professional when going through that process. Incorrect filings can lead to fines and penalties, so you want to make sure that things are done correctly.
How do you file taxes?
Many people today use TurboTax or some other tax software to e-file their taxes. This is the quickest and easiest method available. If you prefer, you can still complete paper forms and mail those to the IRS. However, this method is much slower and more cumbersome. E-filing is the preferred filing method, and it will also allow you to get your refund faster.
Do you need to file taxes for Social Security?
If your only income is from Social Security, then you likely will not be required to file any taxes. However, if you have other income on top of your Social Security, then you will probably have to file. If you are married and both receive Social Security, then you might also be required to file. The answer lies in the total amount of your income and your filing status. There is also a Social Security tax limit that prevents you from paying OASDI tax above a certain level of income.
What are some reasons you might have to file taxes?
You will have to file taxes if you earn more than the standard deduction for your filing status. In addition, if you have self-employment income to report, then you will need to file. Finally, if you are married and filing separately, then you will be filing income taxes if you have any income to report at all. There are many reasons why you have to file taxes, and these are just a few of them. Thankfully, receiving life insurance proceeds is not usually a reason to file taxes. Life insurance is generally not taxable, so you may not have to worry about reporting that payment at all. You should always consult a professional to discuss your specific tax situation.
