If the thought of preparing and filing your taxes is cringeworthy, you’re not alone. Whether it’s your first time filing a tax return or you’ve filed many years’ worth of returns, the ever-changing climate of tax legislation keeps all taxpayers on their toes as they stare at each current year’s return. And although professional tax preparers are only a phone call or a short visit away from you, you may be pleasantly surprised to discover how many online tools and publications are at your fingertips to help you file your own return.
Federal Income Tax Filing
The U.S. Treasury Department authorizes the Internal Revenue Service (IRS) to assess and collect federal income taxes on taxpayers’ earnings. The revenue the IRS collects helps pay for the country’s operating costs and upkeep expenses such as its infrastructure, defense and emergency disaster relief. But to ease the sticker shock of presenting you with a bill for the total tax you’ll owe at the end of each year, the IRS incrementally collects tax with its pay-as-you-go system.
This way, you’ll pay small amounts of tax as you earn income throughout the year toward the total amount of tax you owe, which is called your tax liability. And then when it’s time for your federal income tax filing, you may only owe a small balance, or you may even receive a tax refund for the amount you overpaid throughout the year.
Do You Have to File?
Federal tax filing requirements depend on various factors such as your age, income and filing status. And these filing requirements change over time, in compliance with current tax laws. For the 2018 tax year, check your filing status to see the minimum income you can make before you’re required to file a tax return. (If you’re self-employed, you must report any income you make that’s more than $400.)
- Filing Single under age 65 – The minimum income you can make before you're required to file an income tax return is $12,000.
- Filing Single over 65 – The minimum income required to file is $13,600.
- Head of Household under 65 – The minimum income required to file is $18,000.
- Head of Household over 65 – The minimum income required to file is $19,600.
- Married Filing Jointly (both spouses under 65) – The minimum income required to file is $24,000.
- Married Filing Jointly (one spouse over 65) – The minimum income required to file is $25,300.
- Married Filing Jointly (both spouses over 65) – The minimum income required to file is $26,600.
- Married Filing Separately (any age) – The minimum income required to file is $5.
- Qualifying Widow(er) under 65 with dependent children – The minimum income required to file is $24,000.
- Qualifying Widow(er) over 65 with dependent children – The minimum income required to file is $25,300.
Choosing a Filing Status
Because the tax you owe is based in part on your filing status, it’s important to choose the best filing category. You may only fit the requirements of one filing status, but if you qualify in more than one category, choose the one that requires you to pay the lowest amount of tax.
To determine your marital status for a tax year, look to the last day of the year (Dec. 31). Whatever your marital status was on this day is your marital status for the entire year. For example, even if your wedding was on the last day of the year, the IRS considers your marital status for the entire year as “married.”
Likewise, if the final decree of your divorce was finalized on Dec. 31, the IRS considers your marital status for the entire year as "unmarried." If you’re unsure of which filing status applies to you, IRS Publication 501 (Exemptions, Standard Deduction and Filing Information) can help you determine this.
Two Ways to Pay Tax
You’ll choose one of two ways to pay your income tax, depending on how you get paid. If you’re someone’s employee (or if your income is from nonemployee sources such as Social Security, certain government payments or a pension), your employer or other distributor of funds withholds income tax from your earnings as you receive their payments.
If you are self-employed without a traditional employer-employee job, you’re responsible for making quarterly income tax payments during the year.
Completing a W-4 or W-9
When you start a new job, your employer asks you to complete IRS Form W-4 (Employee’s Withholding Allowance Certificate). Or you may not have a new job, but your tax situation has changed, which may prompt you to submit an updated W-4. For example, if you get married or divorced, or if your number of dependents changes you may want this to reflect on your income tax withholding. Whatever the reason for completing this form, the goal is the same – you’re letting your employer know how much income tax to withhold from each of your paychecks.
If you do not work for an employer, you won’t complete a W-4, but you may fill out one (or more) IRS Form W-9 (Request for Taxpayer Identification Number and Certification). For example, if you’re an independent contractor, your clients may ask you to complete a W-9 to ensure they comply with IRS regulations for reporting the payments they make to you. You’ll also fill out a W-9 for other types of payments such as a retirement account.
Determining Your W-4 Allowances
Line 5 on your W-4 communicates to your employer the total number of allowances you’re claiming. This is not a dollar amount; it’s a numerical value that your employer uses to calculate the actual amount that will be withheld from each of your paychecks. For each allowance you claim, your employer withholds less from your paycheck, which means more take-home pay for you.
Using W-4 Worksheets
You don’t have to play a guessing game to figure out the number of allowances you’ll claim. The IRS includes three different worksheets with the W-4 forms, which walk you through the process of calculating your allowances. You only need to use the worksheet(s) that apply to your tax situation. And if your employer forgot to include the worksheets with your W-4, simply visit IRS.gov/forms to retrieve them.
- Personal Allowances Worksheet. Start with this worksheet first to calculate your withholding allowances, and enter the number “1” on Line A, which represents the allowance for yourself. If you’re married filing jointly with your spouse, you can enter another allowance on Line B. if you’re filing as head-of-household, you can enter another allowance on Line C. (Refer to Publication 501 to determine your best filing status.) Follow each line item on the worksheet and enter more allowances, for example, for your eligible children and other dependents. IRS Publication 972 (Child Tax Credit) explains what the IRS means by “eligible” or “qualifying” child.
- Deductions, Adjustments and Additional Income Worksheet. If you itemize deductions, receive a sizeable amount of unearned (nonwage) income or have certain adjustments to your income, use this worksheet to figure your allowances. IRS Publication 505 (Tax Withholding and Estimated Tax) has a wealth of information to help you figure any allowable deductions that you may overlook, including charitable contributions, medical expenses and mortgage loan interest.
- Two Earners/Multiple Jobs Worksheet. If the directions for Line 10 of the Personal Allowances Worksheet refer you to the Two Earners/Multiple Jobs Worksheet, you may be able to claim more allowances if you have more than one job, for example.
IRS Withholding Calculator Online Tool
If you’d rather ditch the manual computations that the W-4 worksheets require, the IRS has another option that offers an interactive, step-by-step process to calculate your allowances. You can find this online tool – called the IRS Withholding Calculator – by visiting IRS.gov and searching for it by name. All you have to do is follow the prompts to discover the number of allowances you’ll claim. The IRS recommends using this tool to perform a “paycheck checkup” each year, just to keep the number of your allowances aligned with any changes in tax law.
Receiving a W-2 or 1099
The work you do by filling out and submitting a W-4 or W-9 sets the stage for receiving the forms that you need to file your tax return. If you work for an employer, look for IRS Form W-2 (Wage and Tax Statement), and if you receive nonemployee compensation, look for the appropriate form in the IRS Form 1099 series that applies to your specific income situation. Both the W-2 and 1099 forms show the total amount of income you received during the tax year. Unlike the W-2, which also shows the amount of income tax your employer withheld from your paychecks, the 1099 only shows the income you received, since you’re responsible for making quarterly tax payments on 1099 income.
Regardless of whether you receive a W-2 or a 1099, you're still required to file your return by the tax filing deadline of April 15 (or the next business day if April 15 falls on a weekend or federal holiday). Otherwise, you can face a fine and/or penalty. If you need more time, you'll need to request a tax filing extension through IRS Form 4868.
If you have not received your W-2 by the end of February, call the IRS at 800-829-1040 and a representative will step in to help.
Which Tax Form To Use?
Prior to the 2018 tax year, you had a choice of 1040 tax forms to use – IRS Form 1040 (long form), IRS Form 1040-A or IRS Form 1040-EZ (short form). But beginning with the 2018 tax year (for tax returns filed in the 2019 tax season), the IRS has consolidated the 1040 series into one concise form. The goal for this “new 1040” is to simplify tax filing by allowing all of the 150 million taxpayers to use one streamlined form. You’ll still supplement this form, if needed, by using supporting schedules such as Schedule A (to itemize your deductions).
Claiming Tax Exemptions
One noticeable change for the 2018 tax year is the elimination of personal, spousal and dependent exemptions. These exemptions represented dollar amounts that reduced your tax liability, but the Tax Cuts and Jobs Act (TCJA) suspended exemptions for the tax years 2018 through 2025.
The word “exemption,” however, is still applicable for those taxpayers who claim exemption from withholding on Line 7 of their W-4. This is not the same as a personal exemption – it’s a designation that allows certain qualifying taxpayers the opportunity to receive income that’s exempt from withholding. To qualify for this exemption, you must meet two conditions: 1) you had no tax liability for the previous year, which meant you were eligible for a full refund of any federal income tax that was withheld from your paychecks and 2) you also expect to have no tax liability for the current tax year, which will result in a full refund of all federal income tax that is withheld from your paychecks.
Claiming Tax Deductions
Deductions are not exemptions. They represent certain expenses that the IRS allows you to deduct from your taxable income, which lowers the amount of tax you’ll owe. You have a choice of taking the “standard deduction,” an amount based on your income and filing status, or itemizing your deductions. If the total amount of your itemized deductions is greater than the standard deduction you’re allowed, it’s better to itemize. But if the amount of your itemized deductions falls short of the standard deduction you’re allowed to take, you’ll realize a bigger tax savings by taking the standard deduction.
The standard deductions for the 2018 tax year are:
- $12,000 (filing single or married filing separately)
- $18,000 (head of household)
- $24,000 (married filing jointly)
- $24,000 (qualifying widow(er) )
You can also take these additional deductions for the 2018 tax year:
- Age – If you are 65 or older and filing single or head of household, you can deduct an additional $1,600. If either you or your spouse is 65 or older, and you're filing a joint return, you can deduct an additional $1,300. If you are filing a joint return, and you and your spouse are both older than 65, you can deduct an additional $2,600.
- Blindness – If you are legally blind, and you’re filing single or head of household, you can deduct an additional $1,600. If either you or your spouse is legally blind, and you're filing a joint return, you can deduct an additional $1,300. If you are filing a joint return, and both you and your spouse are legally blind, you can deduct an additional $2,600.
- IRS: The Agency, Its Mission and Statutory Authority
- Investopedia: Federal Income Tax
- IRS: Pay As You Go, So You Won't Owe - A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty
- efile.com: Do You Have to File a 2018 Tax Return?
- IRS: Publication 501
- IRS: 2018 Form W-4
- IRS: About Publication 972 - Child Tax Credit
- IRS: About Publication 505 - Tax Withholding and Estimated Tax
- IRS: IRS Withholding Calculator
- IRS: IRS Working on a New Form 1040 for 2019 Tax Season
- IRS: W-2 - Additional, Incorrect, Lost, Non-Receipt, Omitted
- efile.com: Federal Standard Tax Deductions for 2018, 2017, Other Years