Some taxpayers aren't required to file a federal income tax return because their incomes don't meet the minimum taxable threshold. You don’t have to worry about an IRS penalty for failure to file if you fall into this group, but the majority of taxpayers who are required to file a return can face some stiff penalties if they fail to do so.
What Determines the Tax Filing Requirement?
Your income largely determines whether you’re required to file a tax return, but it’s not the sole factor. The general rule is that if your taxable income is equal to or less than the IRS-allowed standard deduction you can claim for your filing status, you won’t have to file a tax return. But you must also consider the type of income you have and some other tax filing requirements such as whether you can be claimed as another taxpayer's dependent.
2021 Federal Income Tax Thresholds
Taxpayers who have income less than or equal to the year's standard deduction for their filing status generally don't have to file a return. There might be no point in doing so. You'd be reporting zero taxable income when you subtract your available standard deduction from your earnings, so filing a tax return serves no purpose. There would be no tax due.
This would be the case if you had $12,550 in income in 2021 and you're a single taxpayer. You're entitled to a standard deduction of $12,550, so your taxable income would be zero.
Taxpayers who earn less than or equal to these minimum income requirements typically don't have to file a 2021 federal tax return in 2022:
- Single under age 65: $12,550
- Single 65 or older: $14,250
- Head of Household under 65: $18,800
- Head of Household 65 or older: $20,500
- Married Filing Jointly (both spouses under 65): $25,100
- Married Filing Jointly (one spouse 65 or older): $26,450
- Married Filing Jointly (both spouses 65 or older): $27,800
- Qualifying Widow(er) under 65 with dependent children: $25,100
- Qualifying Widow(er) 65 or older with dependent children: $26,450
The IRS makes not filing significantly more difficult for married taxpayers who choose to file a separate return, however. The minimum income requirement is just $5 if you don't file a joint married return with your spouse.
Look at Your Income Sources
Check your total income before you apply any deductions to determine if you meet the above thresholds. Make sure you're accounting for everything you must include.
For example, you must still include these amounts as part of your total taxable income even if some or all of your income isn't reported to you on a W-2 or 1099 form. You might not receive a 1099-NEC form if you're an independent contractor rather than an employee, and one of your clients paid you less than $600. Businesses don't have to issue 1099s when they pay someone else less than this amount, but it's still taxable income that you must report on your return, and it counts toward the minimum income requirement for your filing status.
You must also report interest income from a bank account that totals less than $10, even though the bank doesn’t have to issue you a 1099-INT for this amount.
Read More: What Are Self-Employed Taxes?
Additional Tax Filing Requirements
Even if your gross income falls below the minimum filing requirement, you might still have to file a tax return for other reasons:
- You have self-employment income of $400 or more.
- You have unemployment income.
- You had earnings of at least $108.28 from a nonprofit organization such as a church
- You owe taxes on your retirement plan, such as an IRA.
- 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
You might want to file anyway even if you’re not required to file a tax return because there's a benefit in it for you.
The IRS doesn't automatically issue refunds to taxpayers who don't file tax returns to claim them. You'll have to file a return to get the money back if you paid more in through withholding than your actual tax obligation turned out to be. Keep an eye on the calendar because you must file within three years or you'll forfeit your refund.
Most tax credits simply reduce your tax liability – anything you might owe the IRS after you complete your return. They wouldn't benefit you if you don’t owe income tax. But some are refundable credits, such as the earned income tax credit, the additional child tax credit, adoption tax credit, and the American Opportunity credit. You'll have to file a tax return to claim it if you qualify for one. The IRS will send you the cash if you don't have a tax balance for the credit to reduce or eliminate.
All your reported earnings count toward your lifetime earnings for the purpose of calculating Social Security retirement and disability benefits. You won't receive your credits for the year if you don't file a tax return. Your employer should deduct Social Security taxes from your paychecks so the government can keep a tally of your credits, but some employers fail to report your W-2 income properly. And the burden is on you to report your income and pay Social Security taxes on it if you're self-employed.
IRS Penalties for Not Filing
You’ll pay a penalty that's potentially threefold if you're not exempt from filing a tax return and you fail to do so.
The late-filing penalty is 5 percent. It's calculated monthly on any unpaid taxes you might owe. The IRS caps at 25 percent. You’ll owe a minimum penalty of the lesser of $435 or 100 percent of the taxes you owe if your filing is more than 60 days past the due date.
You’ll still owe a late-payment penalty if you don't pay your taxes by the filing deadline even if you take an extension for time to file your return. This is 0.5 percent of the taxes you owe on the unpaid balance, and it's also calculated monthly.
Interest on your unpaid tax balance begins compounding daily starting one day after the filing deadline. This interest rate can change every few months because it's based on the federal short-term rate. It's 3 percent as of the first quarter of 2022.
Reasonable Cause Penalty Relief
Unforeseen circumstances can sometimes leave taxpayers in financial straits so severe that they can't pay their tax debts. The IRS offers some relief on a case-by-case basis if taxpayers have “sound reasons” and “reasonable cause” for not paying. This can include serious illness, a natural disaster...and yes, a coronavirus pandemic that's left you unemployed.
Contact the IRS at 1-800-829-1040 to see if you qualify for penalty relief. You might be able to obtain an extension of time to pay, or the IRS might allow you to pay your tax bill on a payment plan. It offers different kinds of installment agreements to help taxpayers, including a streamlined installment plan and a guaranteed installment plan.
Read More: What Happens If You Can't Make Federal Tax Payments?
- 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
- IRS: 2020 Instructions for Forms 1099-MISC and 1099-NEC
- IRS: Topic No. 403 Interest Received
- IRS: Tax Year 2020 1040 and 1040-SR Instructions
- IRS: Publication 501 Dependents, Standard Deduction, and Filing Information
- IRS: Self-Employed Individuals Tax Center
- Social Security Administration: If You Work for a Nonprofit Organization
- IRS: Collection Procedural Questions 3
- IRS: Interest Rates Remain the Same for the First Quarter of 2022
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.