Taxes are a fact of life, and the IRS makes sure that this remains so by levying heavy penalties on those who avoid paying. Tax evasion or tax fraud carries a maximum penalty of $100,000 in fines (plus the balance owing and interest) and up to five years in prison.
Needless to say, you will want to avoid accidentally under-reporting your income to the IRS. If you find yourself asking “when do you start paying taxes,” don’t fret – we have you covered!
When Do You Start Paying Taxes?
If you are employed, you are already paying taxes. Your employer is withholding taxes on your paycheck each week as required by law.
Filing your tax return does not necessarily mean that you are paying your taxes. In fact, you may be entitled to a refund depending on the tax credits you are eligible for.
When Do You Have to File?
There are a few limited times that you will not have to file your taxes. This is determined by your income, your age, and the status that you would file under. You do not have to file your taxes if you are:
- Single, and made less than $10,400 last year (under 65) or $11,950 (older than 65)
- The Head of Household and made less than $ 13,400 (under 65) or $14,950 (older than 65)
- Filing jointly as a married couple and made less than $20,800 between both spouses (under 65) or $23,300 (older than 65)
- A widow or widower with a dependent child and made less than $16,750 (under 65) or $18,000 (older than 65)
- Filing separately and made less than $4,050 yourself (all ages)
None of this applies if you are self-employed. Self-employed people have to file a tax return as soon as they hit $400 in earnings. This is because income tax is not withheld from self-employment income by the IRS since you aren’t being paid from an employer’s payroll system. Make sure you get good advice on taxes for small business as well.
However, in most cases, it is still a good idea to file your tax return even if you are not legally required to. You may be eligible for a refund from the government because of the credits you qualify for, especially if you fall below the minimums listed above.
What About State Income Taxes?
Whether or not you have to file a state income tax return depends on the state you live in and how much money you make. You should check local regulations to see what your state requires.
As this article in thepaystubs.com details, some states have no income taxes at all. In these few cases, you won’t have to file a state return at all.
Keep Good Financial Records
Now that you know the answer to the question “when do you start paying taxes?” you can start preparing for April! Keep good financial records of your earnings, including pay stubs and bank statements, to make the filing process easier. Even if you don’t have to file a return, you may be asked to show documents supporting that fact.
Want more information on personal finance and self-employment? Check out the rest of our blog!