If you are a U.S. citizen or resident who made money last year, whether you must file a tax return or not is usually dependent on three things: gross income, filing status and age. Table 1 shows the minimum requirements for filing an income tax return.
2018 Filing Requirements for Most Taxpayers (Table 1)
But there also are other factors that, well, factor into the decision. They include:
- You have household help and pay your employees enough to trigger employment taxes. For the 2018 tax year, that’s $2,100 and it means a Schedule H must be filed with the Form 1040. Although this requirement is popularly called the “nanny tax”, it covers not just childcare assistance, but also maids, housekeepers, gardeners and others who work in or around a private residence as an employee. This does not apply to independent contractors who provides house cleaning services for the taxpayer or a landscaping company who works for multiple homeowners.
- If your, your spouse or dependents received advance payments of the premium tax credit to help cover medical coverage purchased through the healthcare Marketplace. A tax return must be filed to reconcile those amounts.
- If as an independent contractor you made, after expenses, at least $400 from self-employment. While you might not technically have made enough to require filing, you will 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 the workers’ checks. It is possible you could owe SE taxes, but no income tax and a tax return must be filed to submit the payment for the SE taxes.
- Not all of the tips earned were reported to the employer. You will need to do that by filing a return and paying the SE tax on those gratuities. The same SE filing is required if the you received a paycheck, but the employer did not withhold the 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 was not 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.
Sometimes even if you do not have to file a tax return, it is to your benefit to do so. Here are 12 situations when you should file a federal income tax return:
- Federal income tax was withheld, and no tax is due. The only way to get any of this excess money back as a refund is to file a Form 1040.
- You made estimated tax payments for the year or had any of your overpayment from last year’s tax filing applied to this year’s estimated tax. Again, the only way to get any of this excess money back as a refund is to file a Form 1040.
- You qualify for the Earned Income Tax Credit (EITC). This tax break for lower- and middle-income workers is, as the name says, a credit, which means it reduces any tax you owe dollar-for-dollar. It’s also a refundable credit, meaning you can get a tax refund even if you do not owe any tax. The amount of the credit and the income thresholds are adjusted annually for inflation, with as much as $6,431 available to some EITC eligible filers for the 2018 tax year.
- If you qualify for the refundable portion of the Tax Cuts and Jobs Act’s (TCJA) new child tax credit. Like the EITC, this additional child tax credit means you could get money back — as much as $1,400 — even if you do not owe any tax.
- You qualify for the Affordable Care Act’s (ACA) premium tax credit. The Affordable Care Act (aka Obamacare) is still law. Most people who qualify for this credit get it in advance — which, as noted in the must-file discussion above, means you have to send in a Form 1040 — when they purchase their health insurance via the Marketplace. But you do have the option of paying all your premiums in full yourself during the tax year and then claiming the credit when you file your tax return.
- You qualify for the health coverage tax credit (HCTC). The HCTC is a refundable tax credit that pays 72.5 percent of qualified health insurance premiums for eligible individuals and their families. This is a separate, more narrow tax credit with different rules than the ACA’s premium tax credit. The IRS has a special Web page with HCTC eligibility and claiming details.
- You qualify for the American opportunity tax credit. This educational tax break would give you a credit of up to $2,500 and portion of it — up to $1,000 — is refundable to some qualifying filers.
- To establish a placeholder for tax deductions and/or credits you need to carry forward. For example, a taxpayer cannot claim a home office deduction if it would produce a loss on the Schedule C. Instead, you claim zero business income for the year and carry any leftover deduction into the next year. But in order to claim that extra write-off in future years when you do have more income, you need to file for that initial claim.
- You received a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Even if you are not required to file a return, if you received this document (or substitute statement) you might want to file a return. Especially if the cost (or basis) of the sold items is not reported to the IRS. All they will see is the sale price and you will need to provide how much you paid for the stock and when it was purchased.
- You must file a state return. Most states collect income tax and use their residents’ federal tax filings as the basis for the state returns. But your state may have some differences with federal tax laws when it comes to filing requirements.
- You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
- To start the audit statute of limitations clock ticking. The IRS generally can go back three years to look at your old tax filings. But that time frame does not start until you actually file a Form 1040. So even if you did not make quite enough to trigger the filing requirement, you might want to make sure the IRS cannot come back, say, 10 years from now to ask about why you did not file in 2018.
If you have any questions as to your benefits in filing an income tax return, contact our office for a comprehensive review of your tax situation.