Who Is Required to File Income Tax Returns?

by Josh Biggs in Finance on 14th December 2020

Tax returns are generally prepared by filing forms prescribed by the relevant tax authority. They vary significantly in complexity depending on the taxpayer and the complexity of their affairs. In the United States, taxpayers are required to file income tax returns with the Internal Revenue Service (IRS) or the state or local tax collection agency. The taxpayer is supposed to report income and deductions, calculate the tax owed, report credits and payments, and calculate the balance due.

Gross Income Threshold

While taxes are inevitable, it’s not everyone who’s required to file annual income tax returns. Gross income is the primary factor that determines who’s required to file returns. Gross income includes any income that’s not tax-exempt. It can be services, money, goods, or property.

Just like tax brackets, there are threshold levels for income tax return requirements. You’re required to file an income tax return if your gross income meets a certain threshold. Tax agencies determine the gross income thresholds for the different filing statuses, including age, blindness, marital status, type of income, and claimed as a dependent.

The gross income threshold is equal to the standard deduction. Your taxable income is your gross income, less the standard deduction you qualify for, depending on your filing status for the year. You must only file income tax returns if your gross income is more than the standard deduction. 

Filing Status

Filing status is the requirement set by the tax agency as a qualification for the standard deduction. Each status qualifies for a different deduction. These requirements include:

  • Age

Filing income tax returns has no age limit. Dependents and full-time students under 24 and seniors over the age of 65 are subject to different filing requirements. They get an additional standard deduction, which raises the limit for filing returns. 

  • Head of Household

The head of the household should pay more than half the home’s maintenance cost, be unmarried on the final day of the tax year, and have a dependant.

  • Widow or Widower

If you’re a widow/widower with a child dependent, you’re entitled to the same standard deduction as married taxpayers filing jointly for up to two years after your bereavement.              

State Filing Requirements

Most states impose an income tax and have different requirements for filing returns. Most require taxpayers who file federal tax returns to also file state tax returns. If you earn an income in a state that’s not your primary residence or take up residence in multiple states during a tax year, you may be required to file multiple state returns. It’s important to find out the specific state tax requirements for your state.     

Final Thoughts

Even when not required to file returns, you may have to if you want to receive a tax refund. If you’re the victim of identity theft, filing returns gives the IRS your actual income. Failure to file when required can cost you the refund you claimed, and you may end up owing additional taxes, plus penalties and interests. Figure out if you’re required to file income tax returns and how to do it accurately. 

Categories: Finance