Do I Have to File a Tax Return?

30 January 2017
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“Do I have to file a tax return?” is a question heard a lot during this time of year. The answer to this popular question is a lot more complicated than many would think. To understand, one must realize the difference between being required to file a tax return vs. the benefit of filing a tax return even when it’s not required to file. We’ve put together a comprehensive description for your better understating:

When individuals are required to file-

  • Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any).
  • Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
  • Taxpayers are also required to file when they are required to repay a credit or benefit. For example, if a taxpayer acquired health insurance through a government marketplace and received advanced premium tax credit (APTC) they are required to file a return whether or not they are otherwise required to file. A return is required in order to reconcile the APTC with the premium tax credit they entitled based upon their household income for the year.  So generally if you receive a 1095-A you are required to file.
  • Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution.

 

2016 – Filing Thresholds

Filing Status                      Age                                 Threshold

Single                          Under Age 65                         $10,350

Age 65 or Older                           11,900

Married Filing Jointly       Both Spouses Under 65            $20,700

One Spouse 65 or Older                 21,950

Both Spouses 65 or Older              23,200

Married Filing Separate   Any Age                                       4,050

Head of Household         Under 65                               $13,350

65 or Older                                 14,900

Qualifying Widow(er)      Under 65                               $16,650

with Dependent Child      65 or Older                                 17,900

 

When it is beneficial for individuals to file-

There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:

  • Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior over-payment. The only way to recover the excess is to file a return.
  • Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.
  • Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child.
  • American Opportunity Credit – The maximum for this credit for college tuition paid per student is $2,500, and the first four years of post-secondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.
  • Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.

 

For more information about filing requirements and your eligibility to receive tax credits, please contact Dagley & Co. for more information. We recommend not procrastinating, no matter what your stance on filing may be!

 

 

 

 

 

 

 

 

 

 

Image via public domain