Do I Have to File Taxes?

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Contributor, Benzinga
March 18, 2021

Not everyone has to file a tax return. For instance, if your income is below a certain threshold or if you only receive income from certain non-taxable sources (alimony payments beginning in the 2019 tax year), then you do not necessarily have to report that income on a tax return. As a result, you could opt not to file taxes.

There are some compelling reasons to file even if you don’t have to. And there are even more compelling reasons to exercise diligence when filing. If you’re filing a tax return, make sure you do it the right way and use the best possible method to maximize your returns.

Who Has to File Taxes?

Generally, the vast number of Americans will file taxes each year. However, the IRS weighs several factors when determining whether you must file a tax return. These include:

  • Your age
  • Your filing status (whether you are single, head of a household, married and filing jointly or separately, or a qualifying widow/er with dependent children)
  • Your income: The amount and type of income received determines whether you must file a tax return
  • Whether you have a qualifying child as a dependent

The combination of these four basic criteria determines who must file taxes but there are several special circumstances (such as whether you have a visual impairment or disability) that also goes into determining who must file taxes. The reporting requirements and filing eligibility criteria may change between tax years, so make sure you consult IRS resources online or speak with a qualified tax advisor before deciding not to file.

You Have to File Taxes if You…

  • Received distributions from a health savings account, Archer MSA or Medicare Advantage MSA.
  • Are eligible for, and would like to receive, a tax refund. This will allow you to recover any excess amounts you might have paid the IRS over the past year.
  • Qualify for, and would like to claim, applicable tax credits such as the earned income tax credit (EITC) or child and/or dependent care credit.
  • Received wages from an employer who did not deduct withholding taxes on such payments.
  • Earned over $400 in self-employment payments during the year and have to pay self-employment taxes.
  • Owe any special tax such as the alternative minimum tax (AMT).
  • Owe excise tax payments related to retirement plan assets, such as penalties on excess contributions to individual retirement accounts (IRAs) or distributions from such assets.
  • Received certain types of income, such as tips or gratuity payments, on which you have not paid Medicare or Social Security tax.
  • Earned $108.28 or more from a church or other qualified organization that is exempt from deducting Medicare or Social Security tax.
  • Sold your primary home and it resulted in a gain of more than the prevailing primary home sale exclusion limit set by the IRS.

The following table sets out the filing requirements for a typical taxpayer.

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Source: https://www.irs.gov/pub/irs-pdf/p17.pdf

Generally, you must file a tax return if your income from worldwide sources is at least equal to the amount shown in the table above for your age and filing status. Typically, individuals who are exempt from filing do not owe the IRS any tax. However, even if you don’t owe any taxes, you might still qualify to receive a tax refund. Even if you do not have to file, it might make sense to file anyway if you:

  • Would like to claim the first time homebuyer credit.
  • Overpaid estimated tax and would like to claim a refund for such overpayments.
  • Had taxes withheld from your pay, even though you earn below the minimum taxable income threshold for your age and filing status.
  • Qualify for, and would like to get back any money that you may have paid as an alternative minimum tax (AMT) in a prior year.
  • Are an au pair living with a host family in the U.S.

Since the IRS taxes you on your “worldwide income,” U.S. citizens living abroad who meet the filing criteria also have a mandatory obligation to file a tax return each year. Under certain circumstances, you may also need to file if you are a non-resident alien who does not have a green card or does not pass the “substantial presence” test. In some situations, dependents and children of some filers may also need to file their own returns even if someone else has claimed them as dependents on their returns.

You Won’t Have to File Taxes if You…

  • Earn income below the limit of the standard deduction. The amount of this deduction will depend on your age, type of income and filing status.
  • Make an election to include your child’s income on your return. Under certain circumstances, such an election may mean that the child doesn't have to file a return.
  • Have a dependent child who has a combined unearned income of $1,050 or earned income up to $12,000 plus $350, whichever is higher. Typically, dependents can earn larger amounts (compared to independent filers) of unearned income without having to file a tax return.
  • Earned less than $400 in self-employment income.

As a rule, if in any year you don’t owe the IRS any money, and if you do not qualify for any credits or are not expecting any refunds, then you may consider not filing taxes for that year. If the value of credits and/or refunds do not outweigh the time, effort and cost of filing, then you could consider not filing.

Related content: Do I Have to File Taxes?

What You’ll Need to File Your Taxes

1. Get organized

Collect all relevant paperwork needed to complete your tax returns. These include documents related to earned income such as W-2 forms from your employer(s), and Form 1099-MISC from each client for whom you have performed work as an independent contractor. You’ll also need to have copies of other 1099 Forms, including -INT, -DIV, -R and -S if you receive interest on bank deposits, Dividends and distributions on investments, Retirement account distributions and Sales income from real estate transactions. If applicable, make sure that you also have copies of relevant forms 1095-A, B and C related to proof of health insurance coverage. Finally, have copies of receipts related to medical expenses, business expenses and charitable donations.

2. Confirm your filing status

Along with your age and income, your filing status will greatly impact how much tax you must pay. Your filing status will also be determined based on whether you are married and the percentage of household expenses you pay.

3. See if you can file for free

Verify whether you qualify for free tax filing assistance through the Volunteer Income Tax Assistance (VITA) program. You might be eligible if you’re considered low income, have a disability, are a senior or member of the military or are someone with limited English-speaking ability.

4. Choose your tax filing option

You have several choices to prepare and file your returns. You may use free tools, access the best tax software available or get professional help for preparing and filing. You could also complete the requisite paper forms by hand and mail them to the IRS.

5. Calculate your taxes and entitlements

Do the math (either manually, through a spreadsheet or using online software) and calculate your taxes. Add up all your income and check if you are entitled to any deductions and credits, including dependent credits.

6. Decide how you’ll pay

If you owe money to the government, plan how you will make payments. The Electronic Federal Tax Payment System (EFTPS) is the easiest way to pay your taxes. However, other options include direct pay, electronic funds withdrawal, wire payments or paying by cash. The tax filing deadline is typically on or around the middle of April for most of the U.S.

However, there are special deadlines for service members serving abroad or filers who may be traveling or working overseas. Check the IRS website to see when you must file and make sure you do so well before the deadline.    Since you depend on external sources for much of the information needed to file your taxes, it’s good practice to confirm that you have all the pieces in place prior to the tax filing deadline. For instance, you should receive copies of your W-2 form from all your employers by no later than January 31.

January 31 is also the deadline for receiving most of your 1099 forms as well as other forms like W-2G (gambling winnings). Other deadlines might also be applicable, such as February 15 for Form 1099-B (sales and redemptions of securities) and March 15 for Form 1042-S (foreign income).   If you expect to receive a form or document related to your tax filing and you haven’t received it by the IRS-specified deadline, you should contact the initiator/source (your employer, bank, broker or appropriate government agency) shortly following the due date.

Use the IRS Tax Calendar to stay on top of your tax-filing documentation so you can get organized and can file on time and accurately. Access it online to more easily monitor important tax-related due dates and deadlines.

Best Online Tax Software

Final Thoughts

Two important considerations to bear in mind when you file a tax return are your refundable and non-refundable tax credits. The latter cannot exceed the amount owed by you in taxes. Once your tax amount equals your non-refundable tax credits, you can not claim any further non-refundable credits. However, refundable tax credits can exceed your tax liability.

If they do, you may qualify for a tax refund by the IRS. Claiming the standard deduction might be quicker and easier than itemizing, but you could be losing money by not itemizing your deductions. The IRS recommends itemizing if the deductions you are claiming are more than the standard deduction, or if you can’t claim a standard deduction.  

If you itemize your deductions, use Form 1040 and accompanying Schedule A to file your taxes. Make sure you retain a copy of the filed returns, along with all supporting documentation and receipts. Also, make note of the exact amount of refund due because you’ll need it to provide it to the IRS system when tracking the status of your refund.

If you’ve paid tax or interest on your home, have experienced sizable uninsured losses resulting from federally declared disasters or if you’ve made large charitable contributions, consider itemizing rather than taking the standard deduction.

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