Is it necessary for everyone to submit an income tax return?
You don’t have to file an income tax return if your yearly income does not exceed certain thresholds. If your total annual compensation doesn’t exceed certain levels, you won’t need to submit a federal tax return. The amount of money you may make before you report it is also influenced by the type of earnings and your age.
Consider your income levels for tax purposes.
The majority of people are entitled to take the standard deduction. Your age and filing status primarily determine the basic tax deductions that you qualify for. These amounts, which are established by the government before tax season and typically rise with inflation each year, have been set in advance.
The standard deduction and other reductions available to you determine how much of your income is taxable. You don’t have to file a return if your revenue is less than your standard deduction, regardless of whether you have a specific kind of income that necessitates filing a return for other reasons, such as self-employment earnings.
For example, if all of the following are true for you in 2021, you don’t have to file a tax return:
- Under the age of 65
- Don’t have any particular circumstances that would necessitate your filing (such as self-employed earnings).
- You must earn less than $12,550 in 2021 (which is the 2020 baseline deduction for a single person)
What if I am only receiving Social Security benefits?
If you only receive social security benefits, you will not have any taxable income and won’t need to file a tax return in most situations.
If you receive Social Security benefits and are married but file a separate tax return from your spouse you lived with during the year, there is one catch. Then, to determine whether your Social Security benefits exceed your standard deduction, you must always include at least part of them in taxable income.
When are Social Security benefits taxable?
You must also consider tax-exempt income because it might cause your Social Security benefits to be taxable even if you don’t have any other taxable income.
Here’s an example of a situation where you may need to file even if your earnings are tax-free:
- You are under 65 and receive $30,000 in Social Security benefits, but you also get $31,000 in tax-exempt interest. A taxable income of $14,700 will be taken from your Social Security payments.
- You can’t take the standard deduction and still claim the earned income tax credit (EITC), as it’s greater than your regular deduction ($12,550 for a single taxpayer in 2021). As a result, you’ll need to submit a tax return.
To determine if your Social Security payments are taxable:
- Add the Social Security income to all other income, including tax-exempt interest, to get total annual compensation.
- Take the adjusted gross income you’ve calculated thus far and compare it to your filing status’s baseline amount.
- If the overall amount is greater than the base amount, some of your benefits may be taxed.
The income requirements for individuals 65 and older are higher.
You get an additional standard deduction if you are at least 65 years old. You also receive a larger standard deduction if:
- You are unable to see.
- If you or your spouse is at least 65 years old,
- Or if your spouse is blind
A married couple that is both blind and over 65 years old would receive the highest standard deduction, which is $8,000 for individuals.
A larger standard deduction allows you to have more income than someone under age 65 without filing a tax return.
When a dependent (whether that's a kid or an adult) may be required to file tax returns
Regardless of their age or dependency status on someone’s tax return, the individual who is registered as a dependent is subject to stringent filing requirements of the IRS. If that person’s income exceeds the permitted deduction, he or she must file a tax return.
The larger of the following two amounts is used as a standard deduction for single dependents under age 65 who are not blind:
- $1,100 in 2021
- The deduction for the first $19,000 of qualified property is phased out on a sliding scale. Alternatively, if you are single and have no dependents in 2021, your standard tax deduction would be reduced by 20 percent to $12,550.
When a dependent’s income is “unearned,” it comes from sources such as dividends and interest. When the unearned income of the dependent exceeds $1,100 in 2021, they must file a tax return.
When you wish to submit a tax return to receive a tax refund,
There is no need to file a tax return in some years, and there are seasons when you may not be required to do so. If you overpaid taxes, the only way to receive a tax refund is to file a tax return.
- For example, if you are a single person who makes $2,500 in income throughout the year and has $300 taken from your pay for federal tax, you are entitled to a full refund since your earnings fell short of the standard deduction.
- If there is no tax return, the IRS does not issue refunds automatically, so you must file a tax return to claim any tax refund owing to you.
To know more about tax returns and all the paperwork that comes with it, get in touch with us at The Oasis Firm. We’ll take care of all the documents and filing for you so tax season doesn’t have to be stressful. Call us at 833-886-2747!