Some like to joke that the two guarantees in everyone’s life are death and paying taxes. But surprisingly, some people are even exempt from paying federal taxes! Anyone who ever bought something has probably already paid taxes, but filing for your taxes is a little different, and contrary to popular belief, there are a few people who are exempt from paying. Let’s run through a little history of taxes, who does and doesn’t need to file, and how to differentiate between a few types of federal taxes.
The Basics of Tax Filing
Whether you agree with the idea of taxes or not, there’s a reason why they were put into place— spanning even before the 16th Amendment.
A Brief History of Taxes
Taxes began during the Civil War when the Lincoln Administration needed to fund the war, and so levied a 3% tax on every American who earned more than $800 a year. In 1913 came the 16th Amendment on income tax, which allows Congress the power to levy taxes on anything considered income from the American people. It started mostly with an excise tax on things like alcohol and tobacco, and eventually, the Internal Revenue Service (IRS) was formed to start collecting income tax.
Who Does and Doesn’t Need to File Taxes?
You probably feel taxes happening all around us— on our takeout receipts, software invoices, and taxes pulled from the money we earn.
But when it comes to filing, while everyone is encouraged to file for taxes, not everyone has to. It’s mostly determined by their age and yearly income. Here’s who didn’t need to pay taxes in 2022:
- Anyone single and under 65 years old with a yearly income of $12,950 or less
- Anyone married and filing jointly with both spouses under 65 with a yearly income of $25,900 or less
- Any heads of households under 65 with a yearly income of $19,400 or less
- Any heads of households over 65 with a yearly income of $21,150 or less
- Anyone single and over 65 with a gross income of $14,700 or less
- Anyone married filing jointly with both spouses over 65 with a yearly income of $28,700 or less
In short; the minimum income you need to pay taxes for someone single and under 65 is $12,950. Anyone who earns under that doesn’t need to pay taxes.
Earned vs Unearned Income
Tax rates come in all shapes and sizes; while the self-employment tax rate is a flat 15.3% for everyone, other income tax rates depend on your tax bracket, requesting more money from higher earners and less money from lower earners. Tax can be seen in a few ways, one of which is earned versus unearned income.
Earned Income: Income that’s either earned from the job you work at or through your own self-employed business. This is the money you either earn as a salary, through your hourly pay, your unemployment benefits, sick pay, retirement benefits, and self-employed income.
Example: You’re self-employed and filing your 1099. You’ve calculated from your business bank account that you made $50,000 last year from your small business. That $50,000 is all earned income.
Unearned Income: Passive income forms like investments and interest earned from a savings account, residuals (like from a TV show you were on or your original music that was used in a show), sales of assets you’ve received, winnings from the lottery, or airdropped cryptocurrency.
Example: You opened an HYSA (high-yield savings account) with Ally last year, and made $100 from the interest. That $100 is unearned income because you earned it passively (lucky you— you’ll still have to fill out form 1099-INT to pay taxes on it).
Taxable vs Non-Taxable Income
Another way to look at federal taxes is whether it’s taxable or non-taxable. While earned and unearned income are a bit different in how they’re acquired, they’re both considered taxable income. Here’s the difference between the two:
Nontaxable Income: Income you don’t have to pay taxes on, which includes:
- Inheritances and bequests (gifts that are stated in a Will), and gifts under the gift tax limit
- Cash rebates from items
- Alimony and child support, welfare
- Adoption reimbursements or foster care payments
- Most healthcare benefits
- Any public assistance programs, like Social Security (if it’s your only source of income; if not, you likely have to pay taxes on it)
Taxable Income: Pretty much everything else. Have a financial and tax professional help you look over what income is taxable and what income isn’t, as it can get pretty murky to differentiate between taxes that could go either way, like gift taxes, public assistance programs, and healthcare.
Note: Pay particular might to gifts. While certain inheritances and bequests are considered nontaxable gifts, there is a gift tax on purchases over a certain amount. In 2022, the gift tax limit was $16,000 (so anyone who gave a gift less than this didn’t have to pay gift tax), and in 2023, the gift tax limit is $17,000.
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What age do you have to file taxes?
Believe it or not, everyone, regardless of age, has to file taxes and pay income tax. Of course, the government doesn’t expect your baby to fill out paperwork, which is why you can claim children as dependents as long as they live with you for more than half of the year and are under 19 years old, or are under 24 if they’re a full-time student.
What income do I have to pay taxes on?
Earned income, which includes your salary, hourly wage, or money earned from self-employment, and unearned income, like interest from your savings accounts and other passive income streams.
If you make less than $10,000 do you have to file taxes?
You likely don’t have to pay taxes if you make less than $10,000.
Do I need to file taxes if I have no income?
If you don’t have income, you’re likely exempt from paying taxes, but check with a financial specialist to ensure you’re counting earned, unearned, taxable, and nontaxable income before skipping tax season.
Who is required to file a tax return?
Not everyone is required to file an income tax return, but if you don’t fall under some of the tax exemptions, then you have to pay like everyone else.