Do I Need to File Taxes if I Have No Income?
As the name suggests, income tax is a tax on the money people earn each year. Workers pay a percentage of their pay in income tax to fund government programs, both through paycheck withholdings and end-of-year tax returns. For anyone who doesn't earn any income, including children and students, there is usually no legal requirement to file a tax return, However, it can be difficult to know when you actually don't have any income and there may still be benefits to filing even if you don't.
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Determining Income
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Just because you didn't work in a given year doesn't mean you didn't earn income that qualifies for taxes. Besides income from an employer, you'll need to make sure you have no investment income, such as dividends or bank interest. Other sources of income include self-employment income, which is taxed differently, income from disability or unemployment benefits, Advance Earned Income Credits and capital gains from selling stock or other property. Even if you think you have no income, it's a good idea to gather your financial records to determine that you didn't receive benefits or payments that qualify as income and require you to file a tax return.
Income Filing Limits
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Even if you earned some income, you may not need to file a federal income tax return. For self-employed workers, the cut-off is $400 in annual earnings, but for employees it is significantly higher. As of the 2010 tax year, you don't need to file if you are single and earned less than $9,350, if you are married filing jointly and earned less than $18,700, combined with your spouse, or if you are married but file separately and made under $3,650. If someone else can claim you as a dependent, you are more likely to need to file even with modest levels of income. However, in each case, a true lack of income means there's no requirement for you to file.
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Reasons to File
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If you don't need to file a tax return, you still might want to for several reasons. Taxpayers who make estimated payments throughout the year can be eligible for refunds if they don't owe any tax, but the only way to process this refund is by filing a tax return. Likewise, when the federal government issues a tax rebate only those who filed a tax return become eligible. Finally, filing a tax return even when you don't need to can be useful for your personal record keeping and help you make sure you don't owe any taxes that you're not aware of; the penalties for unpaid taxes include steep fines and potentially even jail time.
State vs. Federal
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State and federal income taxes use some similar policies but they are not identical. If you don't have any income and don't need to complete a federal return, the chances are very high that you don't need to file a state income tax return even if you live in a state with income tax. However, you may be eligible for state refunds that you can only receive by filing. If you choose to file a federal return, you can use the same information to complete your state tax return relatively quickly. Always check with your state's tax board before assuming that your federal filing requirement applies to your state taxes as well.
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References
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