Filing US Tax Returns

Do I need to file a US Tax Return?

 Not every US citizen or resident alien is generally required to file a federal tax return (tax returns, estate tax returns, and gift tax returns). The Internal Revenue Service (IRS) has specific rules (income thresholds) to determine who needs to file for each tax year. These rules are based on the following primary factors;

• Gross Income
• Age
• Filing status

 Filing thresholds by filing status table

Who must file a US tax return?

The following Special Situations May Require Filing even when the gross income falls below the IRS-set threshold:

• Self-employed people who earn more than $400 in net income, must file even if the overall income falls below the threshold for other filing requirements.
• Married and filing separately filers who earn more than $5 must file a return, regardless of other income considerations.
• If The gross income from worldwide sources is at least the amount shown for your filing status in the  Filing Requirements.
• The taxpayer owes excise tax (penalty) on retirement plan assets e.g. on failure to access the required minimum distribution (RMD).
• An employee owes some Social Security and Medicare tax on tips that had not been declared to the employer.

As much as a person may not meet IRS income thresholds for filing, there are still good reasons for filing the IRS tax returns. This includes;

When seeking Tax Refunds

Mostly applicable to W-2 employees and others who usually have their taxes withheld at payroll during the year. Should the annual gross income fall below the set threshold, they may receive a refund from the IRS.

Access to Tax Credits

Filing a tax return helps open access to various tax credits that may increase the annual refund. Knowing the tax credits you are eligible for helps. Credits available to low-income earners include;

• The earned income credit (EIC)
• Child Tax Credit
• Saver’s Tax Credit
• Child and Dependent Care Tax Credit
• Premium Tax Credit
• American Opportunity Credit (AOTC)
• Lifetime Learning Credit (LLC)

 How to file US tax return/where to file US tax return

There are a few ways to file your taxes. This can be done through;

 Mail a Return and Payment

You can fill out the appropriate forms and together with the payment, then mail them to the IRS using the postal service is an option.  In this case, the date of filing is considered as the postmark date.  However, if payment is mailed separately, payment is not considered received until the date of actual receipt. Taxpayers are encouraged to use approved delivery services.

 Using the E-File a Return

Its most simple and cost-effective to e-file your income tax return. You can use a participating tax software program to complete and file your taxes. E-File options are listed on IRS.gov.

 Failure to file a US tax return

Can you go to jail for not filing taxes?

Failure to file a tax return if taxes are owed is considered a crime.

• Willful failure to file a tax return is considered a misdemeanor if taxes are owed and may attract up to a year in jail and a $25,000 fine—for each year of non-filing (IRC §7201).

• Scheming (deceitful act beyond non filing) to evade taxes is a felony, and is considered a more serious tax crime, and may attract a maximum punishment of five years in prison, a $100,000 fine, or both (IRC §7201).

By contrast, filing a tax return and failing to pay doesn’t attract any criminal penalty. However, the taxpayer may face interest and penalties, but you won’t be sent to jail.

Penalties for Non-Filers whose gross income meets the filing threshold are as follows.

• Late Filing Penalty: 5% (4.5% late filing and 0.5% late payment) penalty for each month the return is late. This penalty can accumulate up to 25% of your unpaid taxes.
• Failure-to-Pay Penalty: Generally, 0.5% of your unpaid taxes for each month the tax is unpaid.
• Minimum Penalty: If the return is more than 60 days late, the minimum late filing penalty is 100% of your unpaid taxes or a set dollar amount that increases each year, whichever is smaller (the least dollar amount for 2024 was $485).

 IRS statutes of limitations

How Long Should You Worry About Not Filing a Tax Return?

The tax code sets out time limits, or statutes of limitations, for the IRS to pursue non-filers. This is as follows;

• Generally, the statute of limitation for IRS assessment is three years from the due date of a tax return, or the date of filing the return, whichever comes later.
• There are Exceptions to the general rule, the period increases to six years if it’s determined a taxpayer did omit more than 25% of your gross income from a tax return or if there are criminal charges to be pressed.
• There is no statute of limitations for a false or fraudulent return. Likewise, the IRS has no deadline for imposing civil penalties on returns and taxes owed. As much as you can’t serve jail time, you will forever owe the IRS a return. Fines—penalties and interest—on unfiled tax returns will run forever.

The IRS and the taxpayers may extend the statute of limitations by signing an agreement.

Additionally, The IRS can still request a tax return for a period more than six years ago. Usually, such a request is dropped if the taxpayer pleads to not have enough information to prepare a return.

Lastly, If the IRS computer records detect undeclared income from other records such as a W-2 or 1099 form, the IRS may automatically calculate and assess the tax anyway.

 BOTTOM LINE

Not everyone is obligated to file federal tax returns. The tax filing status and gross income are the primary factors that determine whether a return is due.

Most states generally require the filing of a state tax return if filing a federal return. It’s important to know your state tax requirements as well. Also, If you earned income in another state that’s not your primary residence, you may need to file a return in both your home state and the work state.

Lastly, Failure to file taxes when required may lead to fines and penalties.