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Am I required to file a tax return?

by
Lee Reams, BSME, EA
on
6/28/2017
Am I required to file a tax return?

Most people have to file a tax return when they make enough money to owe income taxes.  But there are a number of reasons an individual may have to file, including the following: 

  • Income level requires it – Individuals are required to file a tax return if their income exceeds the sum of the standard deduction (based on their marital and filing status) and their personal exemption plus that of their spouse (if any) for the year. This is referred to as the income filing threshold.
  • Have a refund coming – Where a taxpayer has a refund coming, they must file a return to claim the refund, and if they don’t file a return claiming the refund, then after the 3-year statute of limitations expires, the refund is forfeited.
  • Qualify for a refundable credit – There are a number of tax credits that create substantial refunds, some in thousands of dollars, for lower income taxpayers.  This is true even if a taxpayer has not had any tax withheld or paid any estimated tax in advance.  These refundable credits include the child tax credit, earned income tax credit, education tax credit, fuel tax credit, and premium tax credit.  But a taxpayer must file a return to claim these credits, and after the 3-year statute of limitations expires, these credits are no longer available.  
  • Pay self-employment tax – Even if an individual’s income is below the income filing threshold, but he or she has some self-employment income, they may be required to file and pay self-employment tax, which is the equivalent to the Social Security and Medicare taxes withheld from an employee’s wages.  The only difference being the self-employed individual must pay both the employer’s and the employee’s share of these taxes.  
  • Reconcile government health insurance subsidy – The Affordable Care Act provides a health insurance subsidy for lower income individuals who purchase their insurance through a government Marketplace.  That subsidy is based upon the individual’s household income for the year.  However, the income for the year won’t be known until after the year-ends.  So the insurance subsidy is estimated at the beginning of the year.  Then, after the close of the year when the taxpayer’s household income can be determined, the amount of the actual subsidy is figured, and if the family is entitled to more, it is refunded on the tax return.  If the subsidy received in advance was more than the actual amount allowed, then some or all of the difference may have to be repaid. This reconciliation is done on the tax return for the year of the subsidy, which means anyone who acquired their health insurance from the Marketplace and benefited from a subsidy will need to file a tax return to make the reconciliation.

Lee Reams Sr., EA writes for TaxBuzz, a tax news  and advice website. Reach him at [email protected] or on LinkedIn.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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