How to know if you need to file a tax return
Even though not all Americans need to file tax returns, sometimes it’s actually beneficial to do so. See if you have to file and what you need to know before you get started.
You may think that everyone has to file a tax return, but that’s not always the case. However, there are some good reasons why you might want to file a return even if you don’t have to.
First, let’s take a look at some reasons why you’d have to file a return.
You need to file a tax return if your gross income exceeds a specific limit that is set by the IRS each year. These limits are determined by your age and your filing status—these are categories that are
defined by the IRS and they’re generally related to your marital or family status—it could be single, married filing jointly and so on. For more specific definitions of the different filing statuses, you can visit irs.gov.
Now, when we say gross income that generally means all the money you made during the year that is not tax-exempt—this could include income from employment, properties or from goods and services you provided during the year, among other things.
If you’re 65 or older, these limits are generally a little bit higher.
Now, if you’re claimed as a dependent, you may not need to file a tax return. One example of being claimed as a dependent would be if you were under the age of 24, a student and being claimed as a dependent child by someone like a parent or guardian. However, if your income was more than a certain amount…
… even if you were claimed as a dependent, you will need to file a return.
Also, if you earned more than a certain amount of self-employed income—that might be income from a part-time job—regardless of your filing status, you will have to file a tax return.
It’s important to note that certain tax filing rules apply to all U.S. citizens, even if you are currently living outside the United States.
So, those are the basics. There may be other situations in which you'll need to file a return that we didn't cover, but these are some of the most common examples.
And even if you don’t fall into any of these categories and you aren’t required to file a tax return, there may be some benefits to filing a return anyway.
More than 70% of people who file a tax return receive a refund, according to the IRS.
And if your income is below the previously mentioned limits, you might qualify for tax credits. Some tax credits, known as refundable tax credits, could reduce what you owe to the IRS to below zero—meaning that you wouldn’t owe taxes that year and that, in fact, the IRS would send you a check for all or a portion of that refundable tax credit.
But you’ll need to file a return in order to receive any possible refund or qualify for any tax credits.
Here’s one example: The Affordable Care Act, or ACA premium tax credits. If you qualified for federal help in buying health care coverage through the health insurance marketplace, you could qualify for a credit at the end of the year. Or if you, your spouse or a dependent chose to have advanced payments of the ACA premium credit sent directly to your insurer, you will need to file a return. This is really important, because, according to the IRS, if advance credit payments are made on behalf of you or an individual in your family and you do not file a tax return, you will not be eligible for advance credit payments or cost-sharing reductions in future years.
To claim this premium credit, you’ll need a Form 1040—that’s your tax return—and a Form 8962, Premium Tax Credit.
There are a lot of other credits that you may potentially qualify for or you could also get a refund simply if more taxes were withheld from your paycheck than the amount you owe. Additionally, you may want to file a tax return to limit the time that the IRS gets to audit you for that year and assess additional taxes on you. So, it can pay to file a return even if you don’t have to.
Though filling out a tax return can seem a bit daunting, there are options.
The IRS offers access to free online tax-prep software, if your adjusted gross income is under certain limits.
Check out irs.gov to find out more.
And the Form 1040A and Form 1040EZ are simpler tax forms for those whose financial situations are pretty straightforward. One example where this might be useful would be if you don’t plan to itemize deductions. Both forms are available online.
In addition, if you qualify…
Volunteer Income Tax Assistance, or VITA, offers free, in-person tax help from IRS-trained and staffed community volunteers. You can find the nearest VITA location by using the search tool on the IRS.gov website.
Now, if you do need to file your tax return or want to receive a tax credit, the tax deadline is generally April 15th unless it falls on a weekend or a holiday, in which case it will be the first business day after the 15th.
Now, if you need some extra time, you can file an extension. Just make sure that you've at least paid the amount you owe in taxes to the IRS before the deadline. You could be charged penalties and interest on any amount you owe in taxes after that date. Also, we’ve just been talking about federal income tax returns, but you’ll also need to be sure that you file any necessary state or local income tax returns.
While taxes are an important part of your financial picture, they don’t need to be overwhelming. Knowing if you need to file, how to do so and what to potentially expect when you do, can help put you at ease when it comes to taxes.