Tax season has opened for the 2017 filing season. The Internal Revenue Service (IRS) expects to process nearly 157 million individual tax returns in 2017. Will you be filing one of those returns? And more important, do you need to?
For the 2017 tax filing season, you’ll report the income that you received in 2016. That includes pay received in 2016 but not pay that you receive in 2017 for services performed in 2016 (you’ll report that income next year).
Not every person who received income in 2016 has to file a federal income tax return. There are a number of factors that affect whether you have to file including how much you earned – and the source of that income – as well as your filing status and your age.
Using the chart below, choose your filing status, your age and your gross income for the year. If your gross income is above the threshold for your age and filing status, you should file a federal income tax return. These rules apply if no other person claims you on their federal income tax return.
For most taxpayers, the quick “cheat sheet” formula is this: find your standard deduction and add your personal exemption to that number (remember to consider the increased standard deduction for those over age 65). You can find the 2016 numbers here.
For purposes of figuring your age, if you were born on January 1, 1952, you are considered to be age 65 at the end of 2016.
If you can be claimed as a dependent on someone else’s return, the rules are a little bit different. Here are some basic guidelines:
- For single dependents who are under the age of 65 and not blind, you generally must file a federal income tax return if your unearned income (such as from dividends or interest) was more than $1,050 or if your earned income (such as from wages or salary) was more than $6,300.
- For single dependents who are over 65 or blind, you generally must file a federal income tax return if your unearned income was more than $2,600 or if your earned income was over $7,850.
- For single dependents who are over 65 and blind, you generally must file a federal income tax return if your unearned income was more than $4,150 or if your earned income was over $9,400.
- For married dependents when either of you is under the age of 65 and not blind, you generally must file a federal income tax return if your unearned income was more than $1,050; if your earned income was over $6,300; or if your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
- For married dependents when either of you is over 65 or blind, you generally must file a federal income tax return if your unearned income was more than $2,300; your earned income was over $7,550; and your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
- For married dependents when either of you is over 65 and blind, you generally must file a federal income tax return if your unearned income was more than $3,550; your earned income was over $8,800; and your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
- Keep in mind that these rules apply to dependents who are also married, not just simply married taxpayers. For tax purposes, your spouse is never considered your dependent.
You may also have to file for other reasons. The most frequent reason for filing a federal income tax return even when you don’t meet the basic income criteria is for self-employed persons: those who are self-employed must file a federal income tax return if net earnings are at least $400 (this includes non-employee income reported on a form 1099-MISC). Other reasons to file include owing special taxes like a recapture tax, such as the homebuyer’s credit, alternative minimum tax (AMT), write-in taxes (including uncollected social security, Medicare, or railroad retirement tax on tips you reported to your employer or on group-term life insurance and additional tax on health savings accounts), household employment taxes, taxes on tips you did not report to your employer or on wages from an employer who did not withhold those taxes. You also need to file if you had wages of $108.28 or more from a church or qualified church-controlled organization exempt from payroll taxes. And, of course, you may have to file if advance payments of the premium tax credit were made for you, your spouse, or a dependent who enrolled in coverage through the Health Insurance Marketplace.
Don’t forget those tax-favored accounts. You need to file a return if you received HSA, Archer MSA, or Medicare Advantage MSA distributions during 2016. If you took an early distribution from a qualified plan or one more than the appropriate amount from a qualified retirement plan, or if you made excess contributions to your IRA or MSA, you’ll need to file. If you didn’t take your minimum required distribution – and you were supposed to – you’ll also need to file.
Even if you don’t need to file a federal income tax return this year, you may still want to take advantage of tax breaks and credits which might be available: popular credits include the additional child credit and the American Opportunity credit. You might also be entitled to a refund for excess withholdings or a refundable credit such as the earned income tax credit (EITC).
And, of course, the health care law complicates matters a bit. Here’s a quick summary of what you need to know about filing and health care:
- If you are not required to file a tax return in 2017, you are considered exempt from the shared responsibility payment, and you do not need to file a tax return to claim the coverage exemption.
- If you are required to file a tax return in 2017, and you did not have minimum health insurance coverage for all of 2016, you will also need to file form 8965, Health Care Exemptions (downloads as a pdf). You’ll use form 8965 to claim an exemption from the shared responsibility payment or to figure the amount of the payment. (For more, click here.)
- If you qualify for credits or subsidies, you must file a tax return in 2017 to reconcile the advance payments received in 2016. If you received advance payments in 2016 and fail to claim the premium tax credit on a federal tax return, this could bar you from receiving additional advance payments. That’s a fancy way of saying that if you received health care tax credits or subsidies and you want to continue to receive those health care tax credits or subsidies, you are still required to file your federal income tax returns even if you would normally be exempt. Failure to file means you will be responsible for the full cost of your health care insurance, and you may be asked to repay some or all of the 2016 advance payments of the premium tax credit.
- And yes, recently, President Trump did announce that he intends to repeal the Affordable Care Act (“ACA” or “Obamacare”). However, unless and until repeal happens, or until the IRS makes an official statement to the contrary, ACA-related taxes and penalties are still in place for the 2017 tax season.
It’s also important to consider that these are the federal rules. The rules for your state might be very different. In my own state of Pennsylvania, for example, we don’t have a personal exemption, which means that taxpayers are taxed on the first dollar. It is possible that you might have to file a state (or local) income tax return even if you are exempt from federal income tax so don’t assume otherwise.
If, after all of this, you’re still confused, ask your tax professional, give the IRS a call (1.800.829.1040), or make an appointment to visit an IRS Taxpayer Assistance Center (TAC).