Although most working or retired people must file a tax return, not everyone is required to do so. It's important to know the requirements for who must file a tax return and situations where you should file even if it is not required.
Whether filing a tax return is a must depends primarily on your gross income.
Gross income means all income received in the form of money, goods, property and services that is not exempt from tax. If no one can claim you as a dependent, you must file a tax return if your gross income is over $10,400 if you are single, $20,800 if you are Married Filing Jointly, $4,050 if you are Married Filing Separately, $13,400 if you are Head of Household, or $16,750 if you are a Qualifying Widow(er) with a dependent child.
These numbers are generally increased if you or your spouse is over the age of 65. Different rules apply for those who can be claimed as a dependent on a tax return, but generally a dependent with over $1,050 in unearned income or $6,350 in earned income must file a tax return.
Although many people are required to file a federal tax return, there are some situations in which you should file a tax return even if you are not required to file.
Most importantly, if you have had income tax withheld from your pay, you should file a tax return.
Contrary to popular belief, your income tax withheld on your pay check is not the tax you have to pay. The tax you have to pay is determined by filling out a Form 1040 Individual Income Tax Return.
Tax withholding from your pay simply allows the IRS to hold on to what your expected tax is going to be, bit by bit throughout the year, so you do not have to pay your tax all at once out of pocket. Your tax may be lower than the amount of money withheld from your pay, but you could also end up owing if you do not withhold enough. It all depends on your unique situation.
Congress has also created a variety of credits to give money back to taxpayers, and some of these may give you money back, even if you have no tax liability. These are called refundable credits -- as opposed to nonrefundable, like the retirement savings contribution credit, which only reduce your liability.
For example, one very valuable credit is the Earned Income Tax Credit, or EITC. This credit is refundable, but there are several requirements, including minimum and maximum income levels, age and number of qualifying children. The only way to get the money from credits is to file a tax return.
Another valuable credit is the Additional Child Tax Credit with a maximum benefit of $1,000 per child for this tax year. Again, there are several requirements, mostly based on income, to claim this credit. The American Opportunity Credit is another benefit to encourage higher education with a maximum value of $2,500, but with limitations such as income of the taxpayer, qualified expenses paid versus amount of scholarship and assistance received, and number of years previously claimed.
If any of the programs apply to you, you should file a tax return in order to claim your benefit. However, as mentioned with the previous credits, all credits are generally subject to limitations based on filing status and adjusted gross income.
This information is based on current tax law. For next year, the Tax Cuts and Jobs Act will affect the value of credits and which credits are available. The amount of income that requires filing also changes from year to year. It is important to stay up-to-date on these changes and not assume that your taxes and credits will be the same from year to year.
If you fail to file on time and are owing, there is a penalty. Be sure to file if you need to, and consider filing to protect yourself from identity fraud, even if you are not required.
Tax Day is three days away.
The Fort Knox Tax Center is still open, and is a great resource if you need to file a tax return and qualify for our services. To make a tax return appointment with an IRS trained and certified tax preparer, call (502) 624-0044.
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