Pay-As-You-Go Tax

The U.S. federal income tax is a pay-as-you-go tax.  Federal income tax is withheld from your wages, salary and other compensation for your work as an employee.  Income tax may also be withheld from interest, dividends and other types of investment income.  And taxpayers who have business income or other types of income may have to make estimated tax payments during the year.

The idea behind tax withholding and estimated tax payments is to ensure that taxpayers have met their income tax obligations throughout the year.  The purpose of filing a tax return after the end of the year is to determine if any additional tax is owed, or if the taxpayer has overpaid his or her tax and is entitled to a refund.

The annual income tax return is where all actual income received during the year is reported, and the applicable provisions of the income tax law are applied in order to determine each taxpayer’s actual tax liability for the year, based on filing status, personal and other exemptions, tax deductions and credits.

Even though you have had tax withheld from your pay during the year, you will need to review the filing requirements that the Internal Revenue Service (IRS) publishes each year to see if you have to file a return.  You should also keep in mind that it may be to your advantage to file a return, even if you are not required to file, so that you can receive a refund, if too much tax was withheld, or to claim certain tax benefits, such as the earned income credit.

Where To Get Information To See If You Have To File A Return

The filing requirements are published by the IRS each year.  The IRS website contains a great deal of helpful information.  You can also view and download IRS forms, instructions, and publications from this website.  You can find printed versions of the most commonly used forms, instructions and publications in certain public places such as post offices, or public libraries.  Or you can go to your nearest IRS office to obtain this information.

Charts of Filing Requirements

If you look in the instructions for Form 1040EZ, 1040A, or 1040, under “Filing Requirements” you will find charts of the filing requirements applicable for each year, according to the criteria explained below.  The instructions for each form will also tell you if you can use that particular form.  Form 1040EZ is the simplest; next comes Form 1040A, and finally Form 1040, which applies to all individual taxpayers who do not qualify, or choose not to use 1040EZ or 1040A.

There are three separate charts in each set of instructions, that are consistent among themselves, but are expanded to comprehend the group of taxpayers eligible to use each of the forms.

Chart A – For Most People

Chart B – For Children and Other Dependents

Chart C – Other Situations When You Must File

Information You Need When Referencing the Charts of Filing Requirements

In order to use the charts to determine whether you have to file a U.S. Federal Income Tax Return you will need to know:

• your age,
• your marital status,
• whether you can be claimed as a dependent by someone else,
• your gross income, and
• your earned and unearned income.

Are you age 65 or older?

The income tax filing requirements are different for persons who are age 65 or older as of December 31st of the year for which you are filing.

Are you married?

You are considered married for federal income tax purposes if, as of the last day of your tax year (December 31st unless you are on a fiscal year basis), you and your spouse are:

1. Married and living together as husband and wife.
2. Living together in a common law marriage recognized in the state where you live or in the state where the common law marriage began.
3. Married and living apart, but not legally separated under a decree of divorce or separate maintenance.
4. Separated, but under a decree of divorce that is not final. 

Can you be claimed as a dependent?

In order to determine whether you can be claimed as a dependent by someone else, you will probably need to talk to your parents or others who you think may be able to claim you.  There are five dependency tests that must be met in order to claim someone as a dependent:

1. Member of Household or Relationship Test (Are you living in someone else’s household or with a parent or other relative?)
2. Citizen or Resident Test (If you are not a citizen or resident of the U.S., or a resident of Canada or Mexico, you generally cannot be claimed as a dependent by someone else.)
3. Joint Return Test (If you are married and filing a joint return, you generally cannot be claimed as a dependent.)
4. Gross Income Test (What was your total income for the year?)
5. Support Test (Did someone else provide more than half your support?)

What is your income?

For purposes of the filing requirement charts, your gross income is all income you received during the year in the form of money, goods, or services.

Your earned and unearned income becomes a determining factor in whether you have to file when you can be claimed as a dependent by someone else.

Chart A – For Most People

The filing requirements for individuals in general apply to all U.S. citizens, regardless of where they live, and residents of the United States.

Persons who are not U.S. citizens could be residents, nonresidents or dual-status taxpayers.  There are specific rules to determine if a person is a resident or nonresident alien.  The status is determined by the rules defined in IRS Publication 519.

A resident alien (not a U.S. citizen, but living in the U.S.) is generally subject to the same filing requirements as a U.S. citizen.  The same requirements would also apply to nonresident aliens and dual-status aliens who are married to U.S. citizens or residents, and who have elected to be taxed as resident aliens.  There are different filing requirements for other nonresident and dual-status aliens. In these cases, it may be necessary to file a special form – Form 1040NR or Form 1040NR-EZ.

Gross income per Chart A is all income you received from any source that is not specifically exempt from tax.  However, social security benefits do not have to be taken into consideration here, unless you are married filing a separate return and you lived with your spouse at any time during the year.  But, if you did not live with your spouse and you had $3,000 or more of gross income, you have to file a return regardless of your age.

Chart B – For Children and Other Dependents

If you can be claimed as a dependent on your parents’ or someone else’s return, you may have to file a tax return depending on your own marital status, age, earned and unearned income, and gross income.

Earned income includes wages, tips, and taxable scholarship and fellowship grants.  Unearned income includes taxable interest, dividends, capital gain distributions and other types of investment income, and unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.

If your gross income was more than the amount of the exemption for the year (published by the IRS), normally you cannot be claimed as a dependent by your parents or someone else, unless you are under age 19 or a student under age 24.

If you can be claimed as a dependent by someone else and you are married, and your spouse files a separate return and itemizes deductions, you will also have to file a return if you have over $5 of gross income.

Exception for children under age 14

There is an exception to the filing requirements when the dependent is a child under the age of 14.  In this case, if the child’s only income is from interest and dividends and certain other conditions apply, the parents can choose to include the child’s income on their own return instead of filing a separate return for the child.

Chart C – Other Situations When You Must File

There are other situations in which you have to file a tax return even if according to the general rules you would not normally need to file.  These situations are as follows: 

1. You owe any special taxes, such as the following:
   • Social security and Medicare tax on tips you did not report to your employer
   • Uncollected social security and Medicare tax on tips you reported to your employer or on group-term life insurance
   • Alternative minimum tax (a special tax that applies on certain “tax preference” items, or amounts that received special tax treatment)
   • Recapture taxes (taxes on money you got back, or recaptured, after having previously taken a tax deduction or credit)
   • Tax on a qualified plan, including an IRA or other tax-favored account.  But if you are filing a return only because you owe this tax, you can file Form 5329 by itself
2. You received a payment from your employer during the year for advance earned income credit.  This payment would be reported in box 9 of the W-2 form you receive from your employer.
3. Self-employed persons must file a return if their net earnings are at least $400, regardless of the other filing requirements.  This is because of the self-employment tax (the equivalent of the Social Security and Medicare tax) they must pay.
4. You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

Filing in Order to Claim a Refund or a Tax Credit

Even if you are not required to file a tax return, there are cases in which it may be to your advantage to file anyway:

• If you worked and had federal income tax withheld from your pay, you may be entitled to a refund if too much tax was withheld.
• You may qualify for certain tax credits that could result in a refund:
  • Earned income credit
  • Additional child tax credit
  • Health coverage tax credit

Summary

To determine whether you need to file a federal income tax return, you will need to ask yourself the following questions:

• Is my gross income over the limit according to the chart of filing requirements for most people, based on my filing status and age?
• Can I be claimed as a dependent by another person?  If so:
  • What was my unearned income
  • What was my earned income
  • What was my gross income?
  • If married, is my spouse filing separately and itemizing deductions?
• Did I have at least $400 from self-employment?
• Do I owe any special taxes?
• Did I receive an advance earned income credit payment from my employer?

Based on your answers to the above questions, you can determine whether you are required to file a return.

To determine whether you should file a return, even if you are not required to file, you should see whether you qualify for any special tax benefits, such as the earned income credit.  And you should go through the exercise of calculating your tax to see if too much tax may have been withheld from your pay.  In either case, by filing a return you can get a refund.