Mandatory filing of a tax return is based on gross income for the year. There are numerous reasons to file a return for a taxpayer — even when filing of the return is not mandatory. Failure to file these returns could leave money on the table or cause problems down the road.
Although the need to file a return is ultimately based on income, it is often a good idea to still file a return even when the filing is not required.
The income-based filing requirements are based on filing status and age, as well as income.
Below are the mandatory filing requirement criteria:
For single taxpayers younger than 65, the gross income minimum is $12,950. For those 65 and older, it is $14,700.
For head of household tax filers younger than 65, the gross income minimum is $19,400. For those 65 and older, it is $21,150.
For married filing jointly tax filers who are both younger than 65, the gross income minimum is $25,900. If one filer is 65 or older, it is $27,300; if both are 65 or older, it is $28,700.
For married filing separately filers of any age, the gross income minimum is $5.
For a qualifying surviving spouse younger than 65, the gross income minimum is $25,900. If the qualifying surviving spouse is 65 or older, it is $27,300.
The first and most important reason to file a return even when it is not required is if there were any tax withholdings that you can claim as a refund.
Taxpayers generally have withholdings on W-2 wages and often have withholding on retirement income as well. This often comes up for the teenage children of my clients. These young people have an income below the filing threshold but may want to file to claim a refund on the withholding that has occurred.
There were approximately $1.5 billion of unclaimed refunds for the 2019 year due to non-filing of tax returns for that year. The deadline to file a return is three years past the regular tax filing deadline of April 15. In other words, a taxpayer has until April 15, 2024, to file a claim for refund for the 2020 tax year.
Lenders for a mortgage loan or car loan or other type of credit facility may require a copy of the most recent tax filings that a taxpayer has submitted. Not submitting a tax return may prevent the lender from verifying your income and ultimately approving the loan.
There are also a number of tax credits that are available for taxpayers but can only be secured through the filing of a tax return.
From the earned income tax credit to the additional child tax credit, these credits are often refundable tax credits and only through filing a return can a taxpayer received these funds that they are entitled to. I recently filed a return for a client who was below the required income limits and they were able to secure a refund of $6,986 due to various credits they were entitled to. They were entitled to this refund even though they had no withholding for the year as well.
Up to $1,500 of the additional child tax credit is a refundable tax credit. In addition, the Earned Income Tax Credit entitles taxpayers to a maximum refundable credit of up to $6,935. If the taxpayer does not file a return, they will not be able to receive this refund.
A taxpayer may also want to file a return to claim losses that can be carried forward to future years where their taxable income is greater. Without filing a return, the taxpayer cannot capture and carryforward these losses to offset future taxable income.
Filing a return when it is not required may seem like a lot of unnecessary work for an individual.
However, there are often reasons and benefits that make filing returns in these situations a wise decision.
Paul Pahoresky is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at paul@prpassoc.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics.
