8 reasons to wait to file your 2021 tax return
10 reasons to file a tax return even if you don't have to

Do you have to file a tax return? Probably

Woman with outstretched arms_questioning_pexels-anna-shvets-4316723
Photo by Anna Shvets from Pexels

For some folks, the question isn't when to file, but whether they need to do so at all.

It's a legitimate issue. While most of us do have to send in a Form 1040 every year, there are some situations where the Internal Revenue Service doesn't demand filing.

So just who has to file a tax return?

Filing requirements for most of us: Generally, if you are a U.S. citizen or resident you must consider three things when determining whether you have to file a tax return: your age, your filing status and your income.

The table below shows how these three factors work together, specifically as to whether you need to send the IRS a Form 1040 this year to account for your 2021 income.

2021 Filing Requirements for Most Taxpayers

If your filing status is:

AND at the end of 2021 you were:

THEN file a return if your gross income was at least:

Single

64 or younger

65 or older

$12,550

$14,250

     

Married Filing Jointly

64 or younger (both spouses)

65 or older (one spouse)

65 or older (both spouses)

$25,100

$26,450

$27,800

     

Married Filing Separately

Any age

$5

     

Head of Household

64 or younger

65 or older

$18,800

$20,500

     

Qualifying surviving spouse

64 or younger

65 or older

$25,100

$26,450

   

Source: IRS Publication 17

Now for a few notes on the table's entries.

Age matters: Getting older also has a benefit when it comes to whether you have to file. As the table indicates, older individuals get to earn more money before the IRS requires a return.

And the IRS tweaks that age a bit to the advantage of older New Year's Day babies. If you were born on Jan. 1, 1957, you are considered to be age 65 at the end of 2021.

That one-day shift lets you, as a de facto senior citizen, make a little more money before you have to mess with tax filing.

And in most cases, you can't be too young to file if you make enough money. Tax law, however, does take into account other factors in figuring the filing threshold amounts when someone is a tax dependent (more on this in a couple of paragraphs).

Type of earnings to count: Now about the income that triggers the need to file a 1040.

Yes, that $5 amount for married filing separately spouses is correct. If you're married and you and your husband or wife file separate returns, then all it takes is earning five bucks to require filing. This is one of the instances where the tax code encourages couples to stay together.

As for the larger income levels, the IRS looks at your gross, or total income before deductions and adjustments. So the amounts in the table's third column are all that you received during the tax year from all sources.

That includes the main payment method for most of us, money. But you also must take into account goods, property, and services that aren't exempt from tax.

During these last couple of COVID-impacted tax years, that means earnings from gig work, along with your income as an entrepreneur if you were part of the Great Resignation.

Don't forget about money from foreign sources or the sale of your main home, even if you can exclude part or all of the residential sale proceeds. It also covers other capital gains (but not losses), as well as business income (but not losses).

However, you don't have to include any Social Security benefits unless —

  • you are married filing a separate return and you lived with your spouse at any time during 2021, or
  • one-half of your Social Security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

In these cases, you'll have some more calculations to do. Or your tax software or tax preparer will have more work to do.

Dependent filer considerations: There also are filing matters to consider if you're a dependent for tax purposes.

If your parent (or someone else) can claim you as a dependent, the IRS created the chart below, published in the Form 1040 instructions, to help you figure out whether you must file a return.

Dependents 2021 tax year_Form 1040 instructions
The unearned income referred to in the chart includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable Social Security benefits, pensions, annuities, and distributions of unearned income from a trust.

Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants.

Gross income is the total of your unearned and earned income.

Vision factors make a dependent's difference: In addition to age and income, in the case of determining whether a tax dependent must file that potential filer's visual acuity is taken into account.

The IRS refers to it as being blind, but technically you don't have to be totally sightless. Your poor eyesight counts if at the end of the tax year your eye doctor issues a statement that you can't see better than 20/200 in your better eye with glasses or contact lenses, or your field of vision is 20 degrees or less.

Your ophthalmologist's or optometrist's statement also must certify that your eye condition isn't likely to improve beyond either of those conditions. You don't have to file the statement, but do keep it for your records in case the IRS questions why you didn't file.

Yeah, not surprisingly, calculating your filing responsibility as a dependent can be a bit (OK, a lot) confusing. Your tax software or tax preparer should be able to help clear up your situation.

Other filing factors: Such complications are one of the biggest complaints about taxes, a very close second to the perennial grousing about the actual dollars we pay.

This is obvious in the above rules about how income and filing status determine whether you must file a 1040.

But wait. There's more!

Other factors that, well, factor into the filing or not decision include —

  • You made, after expenses, at least $400 from self-employment. This is an area where folks with side hustles need to pay close attention. While you might not technically have made enough to require filing a tax return, you still have to file in order to pay the self-employment (SE) tax on these independent earnings. The tax due here, calculated on Schedule SE, is the self-employed person's version of the payroll taxes that go toward Social Security and Medicare, aka FICA, that are taken out of salaried workers' checks. Again, it bears repeating. It's possible you could owe SE taxes, but no income tax. However, you still must file to report those independent earnings.
  • Your job includes gratuities, but you didn't report all your tips to your employer. You now need to do that by filing a return and also paying the SE tax on those tips. The same SE filing is required if you got a paycheck, but your employer didn't withhold these FICA taxes.
  • You owe the Alternative Minimum Tax (AMT). This parallel tax, created in the 1960s to ensure that rich taxpayers paid at least some (aka minimum) amount of tax, used to snare a lot of middle-income filers because it wasn't indexed for inflation. That changed in 2013, with the annual exemption amounts now reducing the number of folks caught in this tax net. The TCJA went even further, increasing AMT phaseout threshold amounts to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers. If, however, you make enough that you have to pay the AMT, then you must file. A check of the most recent AMT income exclusion inflation adjustments will give you an idea of whether you'll be affected by the AMT.
  • You or your spouse or dependents got advance payments of the premium tax credit to help cover Affordable Care Act (ACA) medical coverage purchased through the healthcare Marketplace. Yes, the ACA, or Obamacare as it's still popularly known, is still around. So is the tax break to help you get coverage. But you must to file to reconcile the health care credit amount you got upfront to buy your policy.
  • You have household help and pay your employees enough to trigger employment taxes. I know, if you can hire help, you probably made enough to have to file a return anyway. But just in case, the IRS says that if in the 2019 tax year you paid $2,100 or more to hired help in or around the house, you must file a Schedule H with your Form 1040.

    Child care nanny children sidewalk chalk_pexels-kampus-production-8954871
    Photo by Kampus Production from Pexels


    Although this requirement is popularly called the nanny tax, it covers not just childcare assistance, but also maids, housekeepers, gardeners and others who provide services as your employee for the upkeep of your private residence. Note the employee characterization. This doesn't apply independent contractors who do household work for you, such as the housekeeper who comes in once a week or the monthly lawn service crew. But be careful here. The IRS looks closely at worker designations. The good news, though, is that if you are filing a tax return only because you owe this tax, you can file Schedule H by itself, without having to hassle with the 1040.

You can find more about filing requirements in the Form 1040 instructions, as well as IRS Publications 501, which discusses (in part) filing, and 17, the IRS' general tax guide.

Don't want to decipher tax-speak? No problem. You also can use the IRS' online tool to determine whether you need to file a return this year.

You also might find these items of interest:

 

Advertisements

 

 

 

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)