7 Facts About Taxes That All Filers Need To Know
The U.S. Tax Code may seem overwhelming — and it is — but as an American taxpayer, there are generally only a few very important things you need to understand about it. Specifically, the most important things that you should know are if you have to file, when you have to file and what you may have to pay.
Read on to brush up on the most important aspects of tax filing for the average American.
You May Not Have To File
In some cases, you may not even have to file a tax return. The IRS has various thresholds for filing based on your age, filing status and income.
For example, for 2022, if you’re single and under 65, you don’t have to file if your gross income is less than $12,950, jumping to $14,700 if you’re 65 or older. For joint filers, the income thresholds range between $25,900 and $28,700, depending on the age of each spouse.
You May Want To File Even if You Don’t Have To
Even if you earn below the tax-filing threshold, you may want to file a return anyway. This is because you may still be entitled to some tax credits.
For example, the Earned Income Tax Credit (EITC) is a refundable tax credit, meaning you can get a refund even if you don’t pay any taxes. For tax year 2022, the maximum amount of the EITC is $6,935, depending on your income, filing status and family size. But you can’t receive that credit, even if you’re entitled to it, if you don’t file a tax return.
Your Taxes Are Due, Even if You File an Extension
Since filing taxes can be complicated — and taxpayers often don’t receive necessary tax forms in a timely manner — the federal government allows for an automatic tax filing extension of six months for anyone who wants one. This extension is automatic — you don’t even have to file a request for it to be granted.
However, while your actual tax form may not be due until Oct. 15 — six months after the standard tax-filing date — your actual taxes are always due on the original tax-filing date. If you wait to pay until Oct. 15, you’ll face six months of late-payment penalties, which are 0.5% of the amount owed for every month that they are late.
You Should File Even if You Can’t Pay
If you can’t pay your taxes, you should still file your return in a timely fashion. Otherwise, you’ll face late-filing penalties of 5% of what you owe for each month that your return is late.
If you can’t pay, you can usually work out an installment plan with the IRS to pay your taxes over time by filling out a simple form.
You May Have To Pay Estimated Taxes
If you don’t have an employer that deducts taxes from your paycheck on a pay-as-you-go basis, you may have to file estimated taxes. Generally, if you are a sole proprietor, a partner or S-corporation shareholder that expects to owe at least $1,000 in taxes, you must file estimated quarterly taxes.
Quarterly estimated taxes are due every Apr. 15, June 15, Sep. 15 and Jan. 15.
You Owe Taxes on All of Your Earned Income — Even if the IRS Doesn’t Know About It
Generally, you’ll receive tax forms like W2s and 1099s every year that will show all of your earned income in a given year. However, in some cases your income may go unreported to the IRS.
For example, if you make a living selling things out of your home or rent out a room in your house on a cash basis, it’s entirely possible that that income will go unreported to the IRS. That doesn’t mean it becomes nontaxable, though.
It’s your obligation as a taxpayer to report all of your earned income to the IRS and pay taxes on it. Although in some cases the IRS may never find out about your unreported income, if it does, at the very least you’ll be facing taxes and penalties. At worst, you could face prison time.
You May Qualify for a Filing Extension
Although the standard tax filing date is Apr. 15 — or the next regular business day if Apr. 15 falls on a weekend or holiday — in some cases, you may be granted a federal extension. This is usually in response to some type of natural disaster.
For example, on Jan. 10, 2023, the IRS announced that California storm victims won’t have to file or pay their taxes until May 15, 2023.
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