Determining What You Owe the IRS: What Is the Minimum Income To File Taxes?
If you had a relatively low income this year, you might be wondering if you have to file taxes. First, don’t assume that making a modest income means the IRS isn’t expecting a tax return from you. If you skip tax preparation due to a misunderstanding, you’re still subject to all of the penalties that apply for unfiled returns. That’s why it’s essential to know the minimum income to file taxes.
Income tax minimum varies by filing status. The IRS has different income minimums for taxpayers based on both filing status and age. If you’re filing as single, the income threshold for owing income taxes is much lower. The threshold is also lower for people under the age of 65 than for people over that age.
What Is the Minimum Income to File Taxes?
More than 40 percent of Americans aren’t required to file taxes because they don’t meet the income minimum. However, the actual minimum income amount can look different from person to person within that group of millions of people. Here’s how it breaks down for 2020 incomes:
- Filing Single: $12,400 (under 65)/$14,050 (over 65)
- Married Filing Jointly: $24,800 (both spouses under 65)/$26,100 (one spouse over 65)/$27,400 (both spouses over 65)
- Married Filing Separately: $5 for all ages
- Head of Household: $18,650 (under 65)/$20,300 (over 65)
- Qualifying Widow(er) With Dependent Child: $24,800 (under 65)/$26,100 (over 65)
- Filing as Self-Employed: $400
You also have some other factors to consider before you shove your tax return into a drawer without sending it to the IRS. While the minimums above will apply in most cases, there could be an additional factor in your case that compels you to file. For instance, a self-employed person who makes below the threshold for their filing category should still file a return. People who purchase health insurance from state or federal marketplaces should also file. Lastly, you may be required to file taxes this year if another person claimed you as a dependent on their return.
What if none of those conditions apply to you? The truth is that you might still want to file your taxes even if you don’t technically have to file this year because you might benefit from some tax perks. For instance, you could receive an unexpected refund if you file, which you won’t receive if you have any unfiled returns. It can be beneficial to file a return every year just to stay on track and keep records of your income. Additionally, the amount you had withheld from your paychecks during the year may be returned to you in the form of a tax refund after you file. This is what’s known as a refundable credit. Not filing your taxes this year could mean that you’re not claiming things like the Additional Child Tax Credit, Health Coverage Tax Credit, or American Opportunity Education Credit. In other words, not filing is like waiving a free check from the IRS!
How can you estimate if you’ll get a refund this year even though you had a very low income? Generally, it’s wise to file your taxes if your employer withheld federal taxes from your paychecks. The same goes if you paid your quarterly estimated tax payments.
Who Doesn’t Pay Income Taxes?
Ultimately, the total income you make in any given year determines your tax obligation. The thresholds above for the various filing categories are what the IRS uses to determine who is required to pay income taxes in any given year. The very basic definition of someone who won’t be required to pay income taxes is a single filer under the age 65 making less than $12,400 per year. When looking at the chart above, you may have noticed that the threshold for all people filing as married filing separately is just $5. No, that’s not a typo. The IRS essentially provides no threshold for people who choose to file as married filing separately.
Do I Need to File a Tax Return?
The only person who can really answer this question is you. First, you’ll need to take a look at your paycheck records for the year to determine if you reached the threshold for your age and filing status. It’s critical to file even if you’ve only made a dollar above the threshold, because not filing when you make a low income opens you up to all of the same penalties for not filing at any income level.
Should You File Your Taxes This Year Even If You Didn’t Make a Lot of Money?
Even if you didn’t meet the minimum income to pay taxes, it’s still generally a good idea to file. The bottom line is that you’re probably entitled to a number of deductions and credits that could result in a nice refund. You also want to look at the whole picture to make sure that you’re accurately reporting your entire income. The full formula for determining if you made the minimum to file taxes includes your filing status, federal income tax withheld for the year, and your gross income.
Some people assume they don’t need to file taxes based on their paycheck and later realize that other earnings they made throughout the year do qualify as income. If you made relatively little income, filing your taxes will likely be a very quick process that only includes a few tax forms. Taking just a little time to file your return is a much better option than dealing with a surprise tax lien down the road.
Final Thoughts: Getting Your Taxes Ready If You Meet the Minimum Income to File Taxes
Not being able to pay what you owe in taxes is never a reason to avoid filing your taxes at any income level. The IRS checks all tax records from around the country to calculate income. That means that the IRS will know how much you made in any given year even if you don’t report your earnings. If you’re worried that filing will create tax problems, you should know that not filing will create even bigger problems. Fortunately, there are many options for tax forgiveness and payment plans that allow you to take care of a tax debt without incurring interest and penalties. The team at Tax Group Center helps taxpayers prepare and file taxes to avoid penalties every day. We also negotiate with the IRS on behalf of our clients when taxpayers can’t pay their tax bills in full. If you’re trying to determine if you meet the minimum income to file taxes, we can take a look at your situation to let you know where you fall. We may also be able to identify some potential credits and refund opportunities that will have the IRS writing you a check this year. Contact us today for a tax consultation with Tax Group Center’s team of tax experts and CPAs.