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Frequently Asked Questions
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How do I know if I have to file a tax return?
Whether you’re required to file a tax return will depend on several factors, including your gross income, filing status, age, and whether you’re a dependent on someone else’s federal income tax return. And you may have to file even if you don’t owe any tax.
To get more specific information on who must file, check out IRS Publication 501. For most people, gross income is the main trigger for filing requirements. For example, in 2020, the filing threshold for single people younger than 65 was $12,400. For married couples filing jointly, it was $24,800 if both spouses were younger than 65.
If you were named as a dependent on someone else’s return and had income, you might also have to file, even if your income was much lower than the general threshold. Publication 501 has more detailed information on when dependents must file.
You’ll also need to file a return if you had at least $400 in Self Employed earnings or meet other specific requirements, such as earning untaxed tips, receiving money from tax-exempt churches, or owing alternative minimum tax. IRS Publication 501 goes into details about these and other special situations.
What income do I have to pay taxes on?
According to the IRS, income includes money, property or services. Any income is taxable unless the law specifically exempts it, and all taxable income must be reported on your tax return. Some nontaxable income must be reported, too, even though you won’t pay taxes on it. Not all taxable income is treated the same. Earned income, like your wages, is taxed differently because you pay Social Security tax, Medicare tax, and state and federal income taxes on it. Unearned income, like child support isn’t subject to payroll taxes, but you do pay federal and sometimes state income tax on it. And some types of unearned income are taxed at a lower capital gains rate, rather than your normal tax rate.
What filing status should I choose?
Tax filers are treated differently based on household status. To inform the IRS of which rules apply to you, you’ll have to choose a filing status. There are five: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child.
Your filing status affects your tax rate standard deduction, and eligibility for certain deductions and credits.
Do I have any dependents?
A dependent is a person you’re responsible for supporting. If you can claim a dependent, you can become eligible for certain tax breaks, including the child tax credit. You may also qualify for head-of-household status.
You may have a dependent if:
- You have a qualifying younger than 19, or under 24 if they’re attending school full time. Your child must either live with you for more than half the year or qualify for an exception and must not provide more than half their own support. Your child also can’t file a joint tax return, except to claim a refund.
- You have a qualifying relative. Your qualifying relative either has to share a specific family relationship with you or must live with you all year long. You must provide more than half their support, they must earn very little, and they can’t be claimed as a dependent by anyone else.
How do I know my tax bracket and tax rate?
The U.S. has a progressive tax system, so not all your income is necessarily taxed at the same rate. Tax brackets refer to the range of incomes taxed at specific rates, while your marginal tax rate is the highest tax bracket applicable to your income.
There are seven tax brackets under current tax law. To find out which one you fall into — and what your tax rate is — you’ll need to know your income. You can then use IRS Tax Rate Schedules for the taxable year to determine your bracket, what your marginal tax rate is, and how much tax you might owe.
Should I take the standard deduction or itemize?
Deductions reduce taxable income. You have a choice between taking a standard deduction or itemized your deductions. When you itemize, you reduce taxable income by the value of certain expenses deductible under U.S. tax law. For example, if you pay mortgage interest, you can deduct the interest paid — but only if you itemize.
Which deductions to take?
To decide which deductions to take, compare the value of the standard deduction versus the total value of your itemized deductions. For 2020, the standard deduction amounts are:
- $12,400 if you file as single or married filing separately
- $18,650 if you file as head of household
- $24,800 if you file as married filing jointly
- Because tax reform significantly increased the standard deduction, you may find your itemized deductions don’t exceed the standard deduct
What’s the difference between a tax credit and a tax deduction?
- Both tax credits and tax deductions can reduce the amount of tax you must pay. Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax. Credits are a dollar-for-dollar reduction in the amount of tax you owe.
- If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).
- By contrast, a $1,000 credit would reduce the actual amount of tax you owe by that $1,000. So if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.
- What are some deductions and credits I can claim? Answer: The deductions and credits you’re eligible to claim vary depending upon your situation. Here are some deductions that you can claim even if you don’t itemize.
- Contributions IRAs, SEP-IRAs, Simple IRAs and solo 401(k)s (these phase out at higher incomes)
- 50% of self-employment taxes
- Student loan interest up to $2,500
- Tuition and fees for higher education up to $4,000 if you fall within income limits
- Health savings account contributions made with personal funds
Deductions you may be eligible to claim only if you itemize:
- $10,000 maximum for the aggregate of state and local taxes paid (SALT taxes)
- Interest on up to $1 million of eligible Home mortgage for loans taken out before Dec. 15, 2017, and up to $750,000 of eligible home mortgage debt for loans taken out after that
- A deduction for medical expenses, but only if they cost at least 7.5% of your income
- A deduction for charitable contributions that don’t exceed a set percentage of income
And finally, here are credits you may be eligible to claim:
- The earned income tax credit provides a credit for lower-income Americans.
- The child tax credit provides a credit of up to $2,000 per qualifying child for tax years 2018 to 2024. As much as $1,400 of this credit is refundable. Eligibility begins phasing out at $200,000 in income for single filers and $400,000 in income for married couples filing jointly.
- The child & dependent cares Acct valued at 20%–35% of the costs of allowable care expenses, up to $3,000 in expenses for the care of one qualifying person. A taxpayer caring for two or more dependents could claim a maximum credit of $6,000.
- The American opportunity credit act provides a maximum credit of $2,500 for qualifying educational expenses paid for eligible students. The credit is available only for tuition paid for the first four years of post-secondary education and there are income limits.
- The lifetime learning credit provides a maximum credit of $2,000 per year for postsecondary educational costs. There are also income limits, and the credit is worth only 20% of qualifying expenses, up to a $10,000 maximum.
- Depending on your situation, there are probably other deductions and credits you can claim.
When will I get my refund?
According to the IRS, most refunds are issued within 21 days for taxpayers who e-filed and who are having their refund directly deposited. Refunds take up to six weeks if you submitted paper returns. Claiming certain credits or deductions might delay your refund.
What if I can’t afford to pay the tax I owe?
If you can’t afford to pay your taxes, it’s imperative you still file tax a return and make arrangements to pay what you owe. Failing to file and/or pay your taxes on time will result in interest and penalties.
If you can’t afford to pay the full amount you owe by the deadline, the IRS has multiple payments option that could help, including installment agreements. Keep in mind that you’ll still owe interest, and possibly penalties, even if you enter into a payment arrangement.