The IRS has rules, so you might still need to send in your taxes even if you don’t owe any money.
This article explores the consequences of not filing when you don’t owe and the possible missed opportunities for refunds and credits.
Why Filing May Still Be Required
As mentioned above, the IRS has strict rules concerning who must file. It is not all about owing taxes. They consider things such as your type of income, your filing status, and the number of dependants you have.
Let’s break down when you still might want to file.
IRS Filing Rules
Most U.S. citizens and residents need to file a tax return once they make a certain amount, even if they don’t owe taxes. The IRS uses this to confirm that people report their income accurately.
Even if deductions or credits bring your tax bill to zero, the IRS may still need you to file.
For example, if you earn wages, you’ll usually file once you reach specific income limits. These limits depend on things like your age, filing status, and income type.
The process keeps the IRS up-to-date, especially if you claim tax credits or benefits that might bring your tax owed to zero or lead to a refund.
Income Thresholds
Income thresholds are a major part of IRS filing requirements, and they vary depending on factors like filing status and age.
Here’s a general breakdown:
⦿ Single Filers:
If you’re under 65 and earn at least $13,850 (as of 2024), you’ll likely need to file a tax return. For single filers aged 65 and over, the threshold rises to $15,700.
⦿ Married Filing Jointly:
Couples under 65 who file jointly have a higher threshold of $27,700. If both spouses are over 65, the income threshold is even higher at $30,700.
⦿ Head of Household:
Single parents or those who qualify as Head of Household have a threshold of $20,800 for those under 65 and $22,650 for those over 65.
⦿ Married Filing Separately:
Regardless of age, those who file separately generally have a low threshold of just $5, which usually means almost anyone in this status is required to file.
⦿ Qualifying Widow(er):
If you lost a spouse and qualify for the widow(er) status, the filing threshold is $27,700 if under 65 and $30,700 if 65 or older.
These figures vary from year to year, so it would be most appropriate to go to the website of the IRS for the latest guidelines.
Even if your income doesn’t exceed these limits, special cases may apply that call for filing.
Dependents and Other Specific Situations
If someone else lists you as a dependent on their tax return, there are specific rules about when you need to file.
Dependents—like children or family members, have different income limits, especially if they’re earning money from a job plus other sources.
⦿ Earned vs. Unearned Income:
Earned income, like wages or self-employment income, follows one set of rules, while unearned income (interest, dividends, and investment income) follows another.
For instance, if a dependent has over $1,250 in unearned income, they might need to file. Earned income thresholds are higher, around $13,850, for most dependents under 65.
If the dependent has a mix of earned and unearned income, the threshold may change again.
⦿ Self-Employment:
The filing threshold for anyone earning income from self-employment is generally $400. This applies even to minors or other dependents.
If they earned $400 or more from a business or freelance work, a tax return is required.
⦿ Special Situations:
Aside from dependents, certain types of payments like Social Security and unemployment benefits, might mean you still need to file, even if you don’t owe taxes.
For instance, if a dependent got Social Security and also had other taxable income, they may need to file if their total income is above a certain limit.
Also, if you received advance Premium Tax Credit payments to help cover health insurance, the IRS requires a tax return to double-check that the credits were calculated correctly.
What Happens If You Don’t File Your Taxes?
Skipping a tax return just because you don’t owe might seem harmless, but it can come with hidden costs. It could mean missing out on future refunds, creating headaches with the IRS, and sometimes even triggering penalties.
Losing Refunds and Credits
One major drawback of not filing is that you might miss out on refunds or credits. The IRS won’t send you a refund unless you file to claim it.
Refundable credits, like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), are designed to help people with low to moderate incomes. Even without owing taxes, you could get a refund from these credits. If you skip filing, you lose any credits and refunds tied to them.
There’s also a time limit to claim refunds.
For instance, if you’re owed a refund for 2024, you have until April 15, 2027, to file and get it. After that, the IRS considers it forfeited. So even if it doesn’t feel urgent, missing a year can add up to lost money over time.
Effects on Future Taxes
Skipping a required filing can cause problems down the line. The IRS tracks each year’s filing status, and if they see a missing return, they may assume you owe taxes.
They could even file a “substitute return” on your behalf, using your W-2s or 1099s to estimate your income. However, this return won’t include any deductions or credits you could have claimed, which may result in a higher tax bill than if you filed yourself.
Additionally, missing a filing can stop you from claiming certain credits or carrying forward deductions in the future.
For example, business or capital losses can carry over to reduce taxable income in future years. But if you skip one year, you might lose the option to carry these losses forward, limiting your tax-saving options.
Penalties for Required Filers
If you’re supposed to file but don’t, the IRS can apply penalties and interest, even if you didn’t initially owe taxes. The main penalties for missed filings are the Failure-to-File and Failure-to-Pay penalties.
The Failure-to-File Penalty is usually 5% of unpaid taxes for each month your return is late, up to a 25% cap. Even if you don’t owe taxes, the IRS can still apply this penalty if they decide you should have filed.
In more serious cases, repeated non-filing can lead to IRS actions like tax liens or levies, especially if there’s unreported income.
The easiest way to avoid these issues is to file, even if you’re unsure if you need to.
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Even if you don’t owe taxes, filing a return can save you from missing out on valuable credits and refunds, and help you avoid future tax complications.
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FAQs
Here are common questions about whether or not you need to file taxes.
