Don't Mess With Taxes

Tax season 2024 officially starts on Jan. 29, and millions of taxpayers are getting ready to deliver their returns that day to the Internal Revenue Service.

Some, however, are asking a more basic question. Do I have to file a Form 1040 at all?

The answer probably is yes. If you're asking the question, you likely made some money, and the Internal Revenue Code doesn't exempt much from taxation.

But as with all things tax, there are exceptions.

In some situations, Uncle Sam doesn't demand individuals file. Here's a look at whether you might be able to join that group of legal nonfilers.

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, taken from IRS Publication 17,  shows how these three factors work together for 2023 tax returns that must be filed by April 15 this year

The table below shows how these three factors work together for 2023 tax returns that must be filed by April 15 this year

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.

The IRS also tweaks that age a bit to the advantage of older New Year's Day babies. If you were born on Jan. 1, 1959, you are considered to be age 65 at the end of 2023.

That one-day shift lets you, as a de facto senior citizen, make a little more money before you have to file a return.

It doesn't work the other way, though. You can't be too young to file if you make enough money.

However, tax law does take into account other factors in figuring filing threshold amounts when someone is a tax dependent. More on this in a couple of paragraphs.

Type of earnings to count: As for the income level that triggers the need to file a 1040, that $5 amount for married filing separately spouses is not a typo.

If you're married and you and your husband or wife file separate returns, then all it takes is earning five bucks for the IRS to demand you file. 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. That's typically from a full-time, wage-paying job, but also covers earnings from side gigs that supplement to your salaried employment, or when you shifted completely to being your own boss.

Don't forget about any capital gains, either from asset sales or distributions from mutual funds you kept in your portfolio. And if you lived in a housing market where prices skyrocketed and you were able to sell before prices dropped, congratulations to you and possibly the IRS. Any home sale profit in excess of the residential exclusion amount ($250,000 for single owners, double that for jointly filing married home sellers) counts.

Older taxpayers also get another possible break in counting income that might require filing. Senior citizens don't have to include any Social Security benefits unless —

• They are married filing a separate return and lived with their spouse at any time during 2023, or
• One-half of their Social Security benefits plus other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

In these cases, older individuals — or their tax software or tax preparers — must make some more calculations.

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.

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

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.

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

Vision factors make a dependent's difference: In addition to age and income, visual acuity plays a part in determining whether a tax dependent must file a return.

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: 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 file to reconcile the health care credit amount you got upfront to buy your policy.

Household help filing requirements: You also face some filing tasks if 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, and likely have a tax pro who helps make sure you file all the necessary forms on time.

But just in case, the IRS says that if in the 2023 tax year you paid $2,600 or more to hired help in or around the house, you must file a Schedule H with your Form 1040. That threshold goes to $2,700 this tax year.

Although the household help payment 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.

Photo by Kampus Production via Pexels

Note, too, the employee characterization. This doesn't apply to 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.

More filing decision help: Finally (yes, finally!) there also are special tax filing rules for individuals whose spouse has died, executors, administrators, legal representatives, U.S. citizens and residents living outside the United States, residents of Puerto Rico, and individuals with income from U.S. territories.

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. And of course, from your tax professional.

Don't have a tax pro and don't want to decipher all the filing rules' 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:

• Tax statements you need to file your 2023 return
• Free File 2024 is open, with 8 companies offering no-cost tax return prep and e-filing
• See more forms at Tax Forms 2024 and last year's Tax Forms 2023 pages

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