It’s not surprising that most of us feel that we must file an annual tax return. After all, even the rich and famous can get in scalding hot water for not paying. (The late hotel magnate Leona Helmsley actually did time in prison for tax evasion. Actor Wesley Snipes has become the latest celebrity to go on trial for failing to pay taxes.)
But the truth is, not everyone needs to file. Even the IRS says so. The agency said that many people will file a 2007 federal income tax return, even though their income fell below the requirements. Based on questions we at TurboTax are seeing from customers in our Live Community, such as students and part-time workers, these requirements aren’t well known.
For Tax Year 2007, single folks don’t need to file unless their annual income tops $8,750 and they’re under age 65, or $10,050, if they’re age 65 or older on Jan. 1, 2008. For married couples filing a joint return and living together at the end of 2007, the income threshold is $17,500 if both are under age 65 and $19,600 if both are age 65 or older.
Go here for a more complete listing.
There are, however, exceptions. If you’re self-employed, you’ll need to file a tax return if your net earnings, basically your profit after expenses, exceed $400 a year. The idea here is not just to get you to pay income taxes, but self-employment, or Social Security taxes as well.
You should also file if you are eligible for the Earned Income Tax Credit, intended to help workers with low incomes. Depending on your income and the number of children you have, the credit can reduce or even eliminate your income tax bill and possibly still generate a refund. See this article.
And even if you’re not required to file, the IRS advises you to do so if you worked and federal income tax was withheld. That’s so you can recover the withholding tax. It’s yours, so take it.
However, if you are supposed to file a return, and you don’t, it could cost you. If you can’t make the full payment, you’re still better off filing a return. The penalty for “failure to file” is 5 percent per month up to 25 percent of the tax your return indicates you owe. By contrast, the penalty for “failure to pay” your taxes is considerably less, ½ percent per month up to a maximum of 25 percent of the amount owing.
Your responsibility for filing a return will, at some point, cease. The IRS says that upon your demise, it’s up to your survivors to decide if you should file one last time. And that, of course, is determined by whether you’d already met the annual filing requirements.