Many individuals are surprised to learn that not everyone is required to submit a federal tax return. Like tax rates, the Internal Revenue Service (IRS) has threshold levels for tax return obligations. The decision to file or not is mostly determined by your gross income and tax status for the tax year. Keep in mind, though, that even if you aren’t obliged to file due to your gross income, you may be entitled for a refund.
- Everyone is not compelled to submit federal income taxes.
- The primary determinants of whether or not you must file are your tax filing status and your income.
- Even if you don’t have to file, you should since you may be entitled for a tax refund.
Federal Filing Requirements
The key criteria deciding whether or not you must file federal taxes are your status and your income. The IRS has the following rules:
Notes and modifications for future years may be found in the IRS publications 17 and 501.
It’s worth noting that 65 is a critical age for seniors. In addition, every married person filing separately who earns more than $5 must submit a return. Because there is no established minimum age for filing taxes, tax filings are entirely about income and tax status.
Dependents under the age of 19 or dependents who are full-time students under the age of 24 may be given special consideration. The IRS offers the following information for dependents in Publications 17 and 501:
Publication 929 contains more information about dependents.
Due to the coronavirus epidemic, the IRS has delayed the 2020 federal tax filing deadline for individuals to May 17, 2021, from the usual deadline of April 15, 2021. Furthermore, as a result of the winter storms that affected Texas, Oklahoma, and Louisiana in February 2021, the IRS has pushed back the 2020 federal individual and company tax reporting deadline for those states to June 15, 2021.
State Filing Requirements
The majority of states in the United States levie income taxes, so it’s crucial to understand your state’s tax laws as well. If you submit a federal return, most states will require you to file a state tax return as well. TurboTax can help you find the specific requirements for each state. If you received income from a job in a state other than your principal home, or if you resided in more than one state during the tax year, you may be required to submit several state forms.
Many tax filers who earn less than the threshold may be eligible for a rebate via their tax filing, which might make filing worthwhile. W-2 workers and those who had tax deducted from their paychecks throughout the year are eligible for refunds. The government also provides a few tax credits for low-income persons, which may allow you to get some money back when filing your taxes.
If taxes were taken from your paycheck throughout the year and your gross income fell below the tax limits, you may be entitled for a refund. Knowing the credits you are entitled for might be beneficial to all taxpayers throughout tax season.
The earned income credit (EIC) is the most often used tax benefit for low-income individuals. To be eligible, you must be between the ages of 25 and 65. The EIC varies according to your income, tax status, and number of dependents, with more dependents giving you with a larger credit.
The highest credit for single taxpayers without children is $538 in 2020, increasing to $543 in 2021. The maximum credit for taxpayers with three or more children is $6,660 in 2020, rising to $6,728 in 2021.
It should be noted that the American Rescue Plan Act of 2021 extends eligibility for childless families for 2021. The statute removes the upper age restriction (formerly 65 years old) and reduces the lower age limit from 25 to 19 years old. In addition, the American Rescue Plan raises the maximum credit for childless families from $543 in 2021 to $1,502.
Other credits to consider for low-income people include:
- Child Tax Credit
- Credit for Savers (retirement investing)
- Tax Credit for Child and Dependent Care
- The Extra Credit (under the Affordable Care Act)
- Credit for American Opportunity (higher education)
- Credit for Lifetime Learning (higher education)
If you are obligated to submit federal taxes but fail to do so, you may face significant fines.
Penalties for Non-Filers
If your income exceeds the set criteria, you must submit and pay the required taxes to the government. The IRS may contact you if you have a significant tax due and do not file. In general, the IRS will notify you of your responsibilities, and any unpaid taxes will incur penalties. They are computed as follows:
- A 5% penalty on the unpaid tax
- For any month in which both penalties apply, the “failure to pay” penalty is subtracted.
- Each month a return is late is charged, up to five months.
- If you file your return after 60 days, the minimum late filing penalty is 100% of your unpaid taxes, or $330. (whichever is smaller).
There may be extra considerations for yearly tax filings in certain circumstances. The conditions listed below may necessitate a tax file even if you are below the threshold.
- You are a self-employed person who earned more than $400 from self-employment throughout the fiscal year.
- You owe an excise tax (i.e., a penalty) on retirement plan assets if you fail to take a necessary minimum distribution, for example.
- You are obligated to pay Social Security and Medicare taxes on tips that you did not disclose to your employer.
Knowing Your Tax Obligations
Understanding the IRS’s yearly threshold restrictions is crucial in deciding whether you must submit a tax return each year. Most people will have comparable tax circumstances year after year, which will help you recognize and comprehend your tax responsibilities.
Some individuals, however, may face substantial shifts from year to year as a consequence of a reduction in income due to a lost job, a marriage, new children, or even a surge in income when moving beyond reliance or higher education. The IRS publishes extensive information for each case each year, so the key is to remain current on the regulations that apply to your specific circumstance. In addition, you should keep a record of your returns for up to six years.
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