Contrary to popular belief, some people do not have to file a tax return every year. To put it bluntly, if you don't owe the Internal Revenue Service (IRS) and the IRS doesn't owe you, you might not be required to file. For instance:
- You do not need to file if you are single, under the age of 65, and your gross income was below $12,400 in 2020.
- You don't need to file if you are married filing jointly, both spouses are under 65, and your joint income was less than $24,800.
- You don't need to file if you are the head of the household and under age 65, and your gross income was less than $18,650.
It's important to remember, though, that you may be missing out if you don't file. If your income is low, you may be eligible for tax credits that you won't know about unless you file. That means the IRS will pay you.
If you have any doubts about whether you need to file, the Internal Revenue Service (IRS) supplies a short survey to help you figure it out.
When You Have to File Income Taxes
If your income falls below taxable levels, the IRS generally doesn't need to hear from you. Those levels are revised each year for single filers, married people filing jointly, and heads of household.
Any income made above those levels has to be reported on a personal income tax return.
If you don't file your 2020 taxes, you might lose out on tax credits you're owed. The American Rescue Plan has unleashed a number of generous payouts and credits for families to offset the financial harm wrought by the COVID-19 pandemic. A family of four will receive a total of $8,200 more in payments and tax credits if their income is below certain levels.
- If you don't owe the government and the government doesn't owe you, you might not be required to file.
- Your taxable income includes not just wages but savings account interest, Social Security payments, and many other possible sources.
- If you don't file you could miss out on some tax credits designed especially for lower-income Americans.
Your Taxable Income
Don't forget that all of your gross income counts. If you have earned income, you should receive a W-4 from your employer detailing your earnings. If you receive Social Security payments, you'll get similar documentation. If you're a gig worker, you might get a form 1099 detailing how much you were paid.
If you're self-employed, you need to file in order to document your earnings and pay any taxes due on them. If you sporadically make money selling stuff on eBay or Etsy, and make more than $400 in a year, that's taxable income.
In any case, remember that your gross income figure reflects all sources of money you receive. If you get an interest payment from a savings account, earn a profit by selling stock, or earn dividends from stocks or bonds, that's income.
If you win some money in a state lottery or receive a cash gift from a generous friend, it may be taxable.
There are big-ticket items as well that must be reported, whether or not your income falls below the threshold level and whether or not you owe income taxes on them:
- You must file an income tax return if you sold your home during the tax year. If so, you may well have a number of expenses to deduct from any profits of the sale, so this is a good time to get an accountant to do your taxes for you.
- You must file if you have distributions or excess contributions from a retirement account to report.
- You must file if you receive tips for any services because you will at least owe Social Security and Medicare taxes on that money.
The federal income tax filing due date for individuals has been extended from April 15, 2021, to May 17, 2021. Payment of taxes owed can be delayed to the same date without penalty. Your state tax deadline may not be delayed.
When In Doubt, File
You can't be blamed for preferring not to file your income tax if you don't have to, but there are benefits to filing.
Various tax credits can be earned by filing an income tax return, including earned income credit, child and dependent care credit, educational tax credit, and the savers credit.
These credits might offset the amount of income taxes owed for people with small amounts of income and could in some cases even yield them more money than if they had not paid taxes on that small amount of income. It is important to always consult a tax professional prior to making a decision on whether to file a yearly income tax return.
This is particularly important in 2021 due to the passage of the American Rescue Act. The Child Tax Credit has been substantially increased to $3,600 for children under age six and $3,000 for older children, and it is payable regardless of your income. In addition, the credits for Child and Dependent Care have been increased.