The upside of having to pay taxes? It means you make enough money to have Uncle Sam want a cut. Congratulations!
The Internal Revenue Service sets a minimum income on which it will collect taxes. Unfortunately, it’s not a simple one-size-fits-all threshold. In general, how much you can make in a year before you face a tax bill depends on a few factors: your filing status, your age, and whether you’re being claimed as a dependent.
If you’re not a dependent, here’s a cheat sheet for you. If your gross income is equal to or more than what’s listed in the table below, based on 2018 requirements, you’d need to file a tax return. (Be sure to check if the IRS updates the filing requirements for 2019 returns. You can use the agency’s interactive tool to find out if you should file taxes. For state filings, TurboTax offers a list of states’ requirements; but, generally, if you file a federal return, you should also file a state return.)
Under Age 65
Age 65 and Older
Married, filing jointly
If both spouses are under age 65: $24,000
If one spouse is 65+: $25,300
If both spouses are 65+: $26,600
Married, filing separately
Head of Household
The thresholds for dependents are based on the amount of your earned income, unearned income and gross income, as well as whether you’re married or single and blind or not. Note, too, that there are a number of special situations—other than being a dependent—that may require you to file a return, even if your income is less than the minimums. For example, if you’re self-employed and make just $400 or more, you have to file taxes.
You can use the Interactive Tax Assistant tool at www.irs.gov to figure out if you’re in one of those special situations and whether you need to file a return. You just have to answer a bunch of questions—mainly about your relationship and income—all of which the site estimates will take 12 minutes to answer.
Back up. What exactly is gross income?
It’s all the money you’ve made in the tax year. For most people, that mainly includes earned income from your salary, wages, tips or bonuses. It also includes unearned income, like dividends and accrued interest, as well as any gambling winnings. It does not include tax-exempt income, such as child support payments, most alimony payments, workers’ comp, and more.
Gross income should not be confused with your adjusted gross income (AGI) or your taxable income. You can determine your AGI by taking your gross income and subtracting certain deductions, including contributions to a traditional IRA, 401(k) and other qualified retirement plans, interest paid on student loans and contributions to a health savings account. Taxable income is your AGI minus your standard deduction or any itemized deductions you claim. (You cannot claim both the standard and itemized deductions. Post-tax reform, most people are better off taking the standard deduction, which for the 2019 filing year goes up to $12,200 for single filers and $24,400 for joint filers.)
So if my gross income falls below those minimums, I don’t have to file a tax return? Correct. But it might be a good idea to file anyway. That’s because you may qualify for certain tax credits and get a little extra cash from Uncle Sam, even if you owe nothing.
What tax credits are available to me?
If you owe little to no taxes, you should focus on tax credits that are refundable. That means you’ll be able to cash them in even if they’re greater than what you owe. Most tax credits are non-refundable, meaning they can reduce your tax bill, but won’t pay you anything extra. So, if you owe $300 in taxes, and you score a tax credit worth $500, if it’s refundable, you can pocket the $200 difference, whereas if it’s non-refundable, you’d just wipe away your $300 bill and call it a day.
One refundable credit you should see if you’re eligible for is the Earned Income Tax Credit (EITC), meant to benefit workers with low to moderate income. In general, you can claim it as long your total earned income is at least $1 and your AGI is less than specified limits, which depend on your filing status and how many qualifying children you claim on your return. For 2019, those limits range from $15,570 if you’re single with no kids to $55,952 if you’re filing jointly and have three or more kids. Also, your investment income must be $3,600 or less for the year. And the corresponding maximum amounts you can get with the EITC range from $529 to $6,557. For the 2018 tax year, 25 million eligible taxpayers claimed the EITC, collecting an average $2,488 credit.
A partly refundable option is the Child Tax Credit (CTC), worth up to $2,000 per qualifying child under age 17. The credit amount is reduced for single filers with a modified AGI (that’s your AGI plus certain deductions including student loan interest, half your self-employment tax and IRA contributions) of $200,000, or $400,000 for married couples filing jointly. And up to $1,400 of that credit per child is refundable.
The American Opportunity Tax Credit (AOTC) is also partly refundable. It’s worth up to $2,500 a year for each eligible student, and 40 percent of it—up to $1,000—can be refunded to you. To claim the full credit, your MAGI must be $80,000 or less, if you’re a single filer (or $160,000 or less, if you’re filing jointly), and to claim it at all, it must be $90,000 or less (or $180,000 or less for joint filers).
Do I have to claim the credits?
No, you never have to take advantage of tax breaks, but why wouldn’t you? Yes, filing taxes can be an intimidating hassle. But it can be well worth it. And taking advantage of any available tax breaks while minimizing your tax bill is a smart way to give yourself a financial boost.
Acorns does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.