This may come as a surprise to many people, but not everyone needs to file a federal tax return. The IRS has threshold levels for tax return requirements just like tax brackets. Whether or not you need to file is primarily based on your level of gross income and status for the tax year. However, keep in mind that even if you aren’t required to file because of your gross income you may still be eligible for a refund.
Federal Filing Requirements
Status and gross income will be the primary factors for determining whether or not you are required to file federal taxes. The IRS has the following requirements:
It’s important to note that 65 is a key age for seniors. Also, any married individual filing separately who earns more than $5 must file a return. Overall there is no minimum age set for filing taxes so tax returns are all primarily about income and tax status.
There can be some special considerations for dependents under the age of 19 or dependents who are full-time students under the age of 24. The IRS provides the following details for dependents, also from Publications 17 and 501:
Additional details on dependents can also be found in in Publication 929.
State Filing Requirements
The majority of U.S. states also take taxes from income so it can be important to know your state tax requirements as well. Most states will require that you file a state tax return if you file a federal return. Specific requirements for each state can be found through TurboTax. If you earned income from a job in a different state than your primary residence or if you lived in multiple states during the tax year you may need to file multiple state returns.
Many tax filers that fall below the income threshold may be able to receive a refund through their tax filing which can make filing beneficial. Refunds are available for W-2 employees and others who have had tax withheld from their paycheck during the year. The government also offers a few tax credits for low income individuals that may provide you with some money back at tax time.
If taxes have been withheld from your payroll during the year and your gross income falls below the tax thresholds, you can be eligible to get that money back. Like for all taxpayers, knowing the credits you are eligible for can also help you during tax season.
The Earned Income Credit (EIC) is the most popular tax credit for low income earners. You must be between ages 25 and 65 to qualify for it. The EIC will vary depending on your income, tax status, and dependents with more dependents providing you with a higher credit. For single filers with no children, the maximum credit is $529 for 2019, rising to $538 in 2020. For filers with three or more children, the maximum credit is $6,557 for 2019, climbing to $6,660 in 2020.
Some other credits to consider for low income individuals include:
- Child Tax Credit;
- Saver’s Credit (retirement investing);
- Child and Dependent Care Tax Credit;
- The Premium Credit (under the Affordable Care Act);
- American Opportunity Credit (higher education); and,
- Lifetime Learning Credit (higher education)
Penalties for Non-Filers
If your income is above the specified thresholds then you are expected to file and pay necessary taxes to the government. If you have a substantial tax obligation and do not file, the IRS can contact you. Generally, the IRS will provide clear notification of your obligations and all unpaid taxes will accrue penalties.
- A penalty of 5% of the unpaid tax.
- Reduced by the "failure to pay" penalty for any month where both penalties apply.
- Charged each month a return is late, up to five months.
- If the return is more than 60 days late, the minimum late filing penalty is 100% of your unpaid taxes or $330 (whichever is smaller).
In some cases there may be some other considerations for annual tax filings. Below are some of the scenarios that may require a tax filing, even if you are below the threshold.
- If you are a self-employed individual with more than $400 in earnings from self-employment during the year then you need to file taxes.
- You owe an excise tax (i.e. a penalty) on retirement plan assets, for example, for failing to take a required minimum distribution.
- You owe social security and Medicare tax on tips that you did not report to your employer.
Understanding Your Tax Obligations
Knowing the IRS’s annual threshold limits is a primary factor in determining whether or not you must file a tax return each year. Most individuals will have similar tax scenarios from year to year, which can be helpful in knowing and understanding your tax obligations. However, some people may experience drastic changes from year to year, as a result of a drop in income from a lost job, a marriage, new children, or even a jump in income when moving beyond dependency or higher education. The IRS provides detailed information each year for every scenario so the key is staying up to date on the requirements relative to your personal situation. You should always maintain a record of your returns for up to six years.