While taxes are inevitable for most Americans, the government doesn’t require those with sufficiently low incomes to file. However, choosing not to file usually means forfeiting profitable tax breaks and other financial advantages. Plus, you’ll be penalized if it turns out you owe taxes or made too much to avoid filing. Individuals under age 65 must file taxes if they make a minimum of $12,950 in 2023 ($25,900 for joint filers under age 65). However, your status can affect your obligation to file. Here’s what you need to know.
For help with your own tax situation, consider working with a financial advisor.
How Much Do You Have to Make to File Taxes?
Your income level and marital status determine if you must file taxes. As a result, it’s crucial to understand how tax regulations affect your individual circumstances. This table shows the tax requirements for every possible scenario for the 2022 tax year (filed by April 2023.) Remember, you can still file taxes if your income falls under the threshold for mandatory filing.
Income Threshold for Mandatory Filing Filing Status Age of Taxpayer at the End of 2022 Income Threshold for mandatory filing Single Under 65 $12,950 Single 65 and older $14,700 Head of household Under 65 $19,400 Head of household 65 and older $21,150 Married filing jointly Both spouses under 65 $25,900 Married filing jointly One spouse 65 or older $27,300 Married filing jointly Both spouses 65 or older $28,700 Married filing separately Any age $5 Qualifying surviving spouse Under 65 $25,900 Qualifying surviving spouse 65 or older $27,300
Filing Status Definitions
It’s crucial when filing to understand what status you fall under. Knowing your status allows you to file correctly and receive the appropriate tax advantages. Here’s how to tell your status:
Single
You have single filing status if you’re unmarried or have legally ended your marriage. In addition, you have single status if you aren’t a surviving spouse or head of household (read on for descriptions of these, as they both provide more tax benefits than single status in most cases).
Married Filing Jointly
If you’re married or haven’t ended your marriage legally, you can file jointly or separately with your spouse. If your spouse passed away in 2022, you can file jointly, separately, or as a qualifying surviving spouse for that tax year. However, remarrying the same year your spouse passed away means you’ll file a separate return with your old spouse and a joint or separate return with your new spouse. On the other hand, if your spouse passed away more than two tax years ago, you’ll have single or head of household status if you haven’t remarried.
Married Filing Separately
You can also file separately if you’re married. Filing jointly usually grants more tax deductions and credits. However, you may reap more advantages by filing separately if one or both spouses are self-employed or want to minimize their student loan payment amounts.
Head of Household
Unmarried filers have the head of household option if they pay over half their housing costs for the year and have a qualified dependent living with them (or pay for a dependent parent’s living expenses regardless of the parent’s home).
Qualifying Surviving Spouse
Those who became widows or widowers within the past two tax years can file as a surviving spouse. To qualify, you can’t have remarried when filing. In addition, you must pay more than half your housing costs for the tax year and have a dependent son, stepson, daughter, or stepdaughter.
Married but Filing as Unmarried
Marriage tax situations can be complicated when couples separate but don’t legally end their marriage. However, you can file unmarried for tax purposes even if you have a spouse. To do so, you must file a separate return and pay for more than half of your annual housing costs. In addition, you must have a dependent whose primary home was your house. Specifically, the dependent can be a biological child, stepchild, or foster child. Lastly, your spouse can’t have lived in your home for the second half of the year.
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Factors that Impact Filing Requirements
As a taxpayer, you’ll have various obligations depending on several elements in your individual circumstances, such as:
Gross Income
Your income is the primary determining factor in whether you must file taxes and how much you owe. The money you make from your job, side hustle, business, international transactions, and investments is subject to taxes. Generally, these income streams contribute to your ordinary income and capital gains tax brackets.
Filing Status and Threshold
As demonstrated above, your filing status influences the benchmark for when you must file taxes. For example, a married couple filing jointly can make more money than a single filer before needing to file.
Self-Employed versus Employee
Working for an employer means you file taxes once per year. Therefore, if your income is solely from wages your employer pays you, you’ll file annually in April. For example, W-2 workers have until April 18, 2023, to file this year. On the other hand, if you generate self-employment income of at least $400, you must pay estimated taxes each quarter or risk incurring financial penalties from the IRS. So, for 2023, your quarterly filing dates are April 18, June 15, and September 15 of 2023. The final quarterly filing date for 2023 is January 15, 2024.
Dependent Status
Regarding tax filing, a dependent relies on someone else for the majority of their financial support. However, being a dependent doesn’t exempt you from filing taxes because dependents can receive income. For instance, a 17-year-old who lives with their parents might have dependent status but earn $13,000 of gross income by working part-time. In this case, their gross income requires them to file or have their parents file on their behalf.
In addition, a dependent with over $1,100 of unearned income (such as money from a trust) must file taxes.
Reasons to File Your Taxes Even if You’re Not Required to
If your tax status and income level don’t require you to file taxes, filing is still a good idea. Generally, filing will put money in your pocket in this situation for a few following reasons.
First, your paychecks had federal income tax withheld. If you fall beneath the filing threshold, the government will return that money to you when you file.
Similarly, your quarterly tax payments as a self-employed worker will come back to you. If your income is under your filing threshold, the state and federal government will return the money to you when you file.
There are also numerous tax credits are available for filers with income under the required level, such as:
Benefits of Filing Taxes
While your income and individual circumstances influence whether you must file taxes, filing regardless allows you to reap a host of advantages:
Maximize Your Refund
Filing taxes means you’ll get the highest possible refund. Therefore, it’s best to file regardless of your income level because you’ll see if you qualify for money back due to your individual circumstances, such as childcare costs or healthcare expenses.
Prevent Penalties
Not filing a tax return puts you at risk of incurring penalties and interest on unpaid taxes if your income is above the threshold. Remember, underestimating your income by a few dollars can be the difference between filing being optional and mandatory. For example, a 65-year-old who thinks their income is $14,695 (and therefore under the filing threshold) while it’s actually $14,705 will owe taxes. In addition, finding out too late means they will owe additional fees for filing after the deadline (April 18, 2023).
Access Governmental Assistance
Applying for financial aid from the government requires your filing status to be up to date. For example, if you want student loans, you must fill out the Free Application for Student Aid (FASFA) form, which requires information from your most recent tax return.
Increase Social Security
The government bases your Social Security benefit on your reported income. Therefore, filing taxes annually will help increase your Social Security check when you retire.
Acquire Loans
Banks and credit unions provide loans to borrowers with sufficient income. These financial institutions look at past tax returns to determine your eligibility, so filing taxes means you can apply for a mortgage or personal loan from your bank.
Peace of Mind
There is no penalty for filing taxes, but failing to file may incur financial penalties and disadvantages. Therefore, filing can only help you: you’ll preempt taxes you weren’t aware of, and you’ll receive the tax credits for which you were eligible.
How to File Your Taxes
The federal tax code is complex, and getting your information to the IRS in time can be challenging. Fortunately, you have numerous ways to file taxes for free:
Get In-Person Tax Help
The IRS offers tax preparation through the Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), and AARP Foundation Tax-Aide programs. These services are free for those with disabilities. In addition, if your income is $60,000 or lower, you’re 60 or above, or you struggle with understanding English, you can access them at no cost.
If you don’t qualify for free assistance, you can visit a tax preparation business to sit down with a professional and file your taxes.
File Online with Professional Help
IRS-certified volunteers can help you file on myfreetaxes.com if your income is $73,000 or less. In addition, you can get help from VITA online at getyourrefund.org if your income is $66,000 or less.
File Yourself Online or Physically
If you’re confident in your tax knowledge, you can file for free through the IRS Free File online tool or print out the forms to fill out physically, regardless of your income level. Remember, you can get free help with filing if you have an income of $73,000 or less.
Use Military Service Benefits
Miltax is a free tax preparation service for those in the military, National Guard, and Coast Guard. In addition, qualifying family members can use the service, as can certain civilian employees of the Defense Department.
Tax Filing Tips
NOTE TO MIKE: I wasn’t sure if this section was needed, but since the article is aimed at people who might be a bit less financially literate than our average reader, I left it in. If you disagree, go ahead and cut)
Filing taxes might not be your favorite annual occurrence, but you can make the most of it with an informed approach. Here’s how to minimize stress and maximize your return when filing:
Keep Tabs on Tax Information
Remaining organized throughout the year will streamline the filing process. So, keep all tax-related documents in one place, such as:
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Identification (such as a Social Security card) for yourself and your dependents
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Your bank account and routing numbers if you want to receive your refund by direct deposit
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Your most recent W-2s and pay stubs
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Business documents
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Estimated quarterly tax payment records
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Documents for your rental properties
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Retirement income forms, like a 1099-R from your IRA
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1099 forms from other income sources, such as a savings account or stock transaction
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Your state and income tax returns from the previous year
Weigh Tax Documents Against Your Expectations
Your tax documents should arrive by the first week or two of February. You can review them to see your annual income, federal tax withholdings, student loan and mortgage interest paid, and more. These numbers will likely reflect last year’s financial and tax circumstances and provide continuity when you file. However, a significant life change, such as a job change or the birth of a child, can mean submitting new information when you file.
Assess Your Needs
On that note, life changes and circumstances dictate your tax situation’s complexity. For instance, profiting from the sale of stock means you’ll owe capital gains taxes. Or, buying a home can lead to increased tax breaks. If the details are overwhelming, it’s best to seek professional help to file. Or, if you have a simple tax situation that hasn’t changed since last year, you may feel comfortable filing on your own.
Remember, errors on your tax return can hurt you in two ways: first, you may leave money on the table by failing to claim the deductions and credits you qualify for. Second, you might make a mistake calculating your owed taxes, leading to penalties from the IRS for underpaying.
Determine Your Status
Usually, you can file in multiple ways, so the question remains each year of which status can provide the most financial benefit. For instance, married couples can choose between joint or separate filing. While filing jointly is usually better, that’s not always the case. For instance, paying expensive COBRA premiums throughout the year can lead to a hefty deduction for a spouse filing separately. Fortunately, tax preparation volunteers and professionals can help identify your optimal status.
Hunt Down Deductions and Credits
Deductions are the primary way to reduce your taxable income. Therefore, taking as many as possible will minimize your tax burden. For example, you can deduct student loan interest, charitable giving, municipal sales taxes, jury duty expenses, and more.
Tax credits are even better than deductions because they can put money in your pocket even if your tax burden is $0. For instance, popular tax credits include the Earned Income Tax Credit and Child and Dependent Care Credit. However, don’t hesitate to explore obscure credits, such as the Residential Clean Energy Credit for installing solar panels.
Put Money into Your IRA and HSA
Your traditional IRA contributions can lower your income taxes. Fortunately, if you forgot to deposit money throughout the year or realize you could have contributed more, you have recourse. Before the filing deadline (usually April 15), you can maximize contributions to a new or existing IRA. For the 2022 tax year, the maximum IRA contribution is $6,000 or $7,000 if you’re 50 or older. Regulations for the 2023 tax year increase this amount to $6,500 and $7,500.
Similarly, you can deposit funds into your HSA retroactively. However, your health insurance plan must meet IRS standards for deductible and out-of-pocket costs. In addition, you can’t open an HSA if you have Medicare or a plan without deductibles or co-pays. Lastly, you’re disqualified if someone else claims you as a dependent.
Be Calendar-Conscious
Working the timetables can improve your tax situation. Generally, you’ll want to perform transactions or incur expenses before the end of the tax year to do so. For example, having a costly surgery before the year’s end can create a medical expense deduction. Likewise, paying your January mortgage payment before December 31 of the previous year will maximize your mortgage interest deduction.
The Bottom Line
Filing taxes is a necessity for most Americans. However, if your income is beneath the filing threshold for your status, it’s best to file taxes nonetheless. You’ll receive tax credits, accumulate Social Security benefits, and eliminate the possibility of unpaid taxes creating financial penalties. As a result, it’s crucial to keep accurate records during the year and work with a tax professional to determine your ideal tax filing status.
Tips for Assessing Tax Status by Income
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Taxes are difficult to figure out, regardless of your income level. Fortunately, help from a professional is available. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Tax credits are lovely because they pay out even if you don’t owe taxes, unlike deductions. To ensure you get every credit possible, here’s a guide to this year’s tax credits.
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