Some taxpayers are not required to file a federal income tax return, typically because their income doesn’t meet the minimum taxable threshold or they’re not owed a tax refund. If you’re in this group, you don’t have to worry about an IRS penalty for failure to file. But if you’re in the other group – the majority of taxpayers who are required to file a return – you may face some pretty stiff penalties if you skip the tax filing requirement. Your first step is to determine which of these two groups applies to you.
Components of the Tax Filing Requirement
Although your income helps determine whether you’re required to file a tax return, it’s not the sole factor. You’ll also consider the type of income you have, your age, your dependency status and your filing status as other tax filing requirements. As a rule of thumb, if your taxable income is equal to or less than the IRS-allowed standard deduction you can claim, you won’t have to file taxes.
Look at Your Income Sources
To determine if your income is above the minimum amount required to file a tax return, first look at your total income before applying any deductions or tax credits. Even if some (or all) of your income is not reported to you on a W-2 or 1099 form, you must still include these amounts as part of your total taxable income.
If you receive 1099 income as a contractor, for example, you may not receive a 1099-MISC if one of your clients paid you less than $600, but this is still taxable income that you must report. And if you receive interest income from a bank account that totals less than $10, you must report this income even though the bank doesn’t have to issue you a 1099-INT.
Read More: What Are Self-Employed Taxes?
2018 and 2019 Federal Income Tax Thresholds
For tax years 2018 and 2019, taxpayers who earn less than these minimum income requirements (generally from W-2 income sources) typically do not have to file a federal tax return:
- Single under age 65 – $12,000
- Single 65 or older – $13,600
- Head of Household under 65 – $18,000
- Head of Household 65 or older – $19,600
- Married Filing Jointly (both spouses under 65) – $24,000
- Married Filing Jointly (one spouse 65 or older) – $25,300
- Married Filing Jointly (both spouses 65 or older) – $26,600
- Married Filing Separately (any age) – $5
- Qualifying Widow(er) under 65 with dependent children – $24,000
- Qualifying Widow(er) 65 or older with dependent children – $25,300
Additional Tax Filing Requirements
Even if your gross income falls below the minimum filing requirement, you’ll still have to file a tax return for other reasons, including:
- You have self-employment income of $400 or more.
- You have unemployment income.
- You had earnings of at least $108.28 from a tax exempt church.
- You owe taxes on your retirement plan such as an individual retirement arrangement.
- You received a payment from your Health Savings Account.
- You can be legally claimed as a dependent on someone else's tax return, and your earned plus unearned income meets IRS guidelines for children's and dependent's income.
Reasons for Filing Anyway
Even if you’re not required to file a tax return, there are reasons you may want to file anyway. If you don't have to file a return, you won’t have to worry about making a late payment if you file past the filing deadline.
- Receive your tax refund. It’s important to note that the IRS does not automatically issue a refund to taxpayers who do not file tax returns to claim their refunds. But if you’re due a refund, you’ll want to keep an eye on the calendar to make sure you file within three years; otherwise, you'll forfeit your refund.
- Receive refundable tax credits. Tax credits are income deductions that reduce your tax liability, but if you don’t owe income tax, they would not benefit you. In these cases, they are issued as refunds. Examples of these refundable credits are the earned income tax credit, additional child tax credit, adoption tax credit, American opportunity credit and the health coverage tax credit. If you qualify for any of these tax credits, you’ll have to file a tax return even if you’re not required to file to receive a refund.
- Receive Social Security lifetime earnings credit. All your reported earnings count toward your lifetime earnings for calculating Social Security retirement and disability benefits. But if you don't file your tax return, you will not receive your credits. Although employers should deduct Social Security payments from your paychecks, some employers fail to report your W-2 income properly. And if you're self-employed, the burden is on you to report your income.
IRS Penalties for Not Filing
- Late-filing penalty – This is a 5 percent file penalty, which is calculated monthly on the unpaid taxes you owe. The IRS caps this penalty for late filing at 25 percent. If your filing is more than 60 days past the due date, you’ll owe a minimum penalty of the lesser of $205 or 100 percent of the taxes you owe.
- Late-payment penalty – Even if you file an extension, you’ll still owe a late-payment penalty if you do not pay your taxes by the filing deadline. This is a 0.5 percent penalty, calculated monthly, of the taxes you owe on the unpaid balance. The IRS waives the late-payment penalty if it falls during any month that you also owe a late-filing penalty.
- Interest penalty – Interest on your unpaid tax balance begins compounding daily starting only one day after the filing deadline. This interest rate changes, at the rate of 3 percent added to the current federal short-term rate. As of 2019, this rate stands at 5 percent.
Reasonable Cause Penalty Relief
Unforeseen circumstances can sometimes leave taxpayers in financial straits so severe that they cannot pay the tax debt on the back taxes they owe. The IRS offers some relief, on a case-by-case basis, if taxpayers have “sound reasons” and “reasonable cause” for not paying. Sound reasons include serious illness, natural disaster and an inability to obtain necessary records.
Contact the IRS at 1-800-829-1040 to see if you qualify for penalty relief. You may be able to obtain an extension of time to pay, or the IRS may allow you to pay your tax bill on a payment plan. The IRS offers different kinds of installment agreements to help taxpayers, including the streamlined installment plan and the guaranteed installment plan.
- eFile.com: Do You Have to File a 2019 Tax Return?
- eFile.com: 1099 Form Information - Types, Filing Requirements, Due Dates
- IRS: Filing Past Due Tax Returns
- Intuit TurboTax: What's the IRS Penalty if I Miss the April Filing Deadline?
- IRS: Penalty Relief Due to Reasonable Cause
- Taxpayer Advocate Service: Installment Agreements
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.