These Are The Only People Who Don't Need To File A Tax Return

Tax season can be a chaotic, stressful, and frustrating experience. Between inflation and student loan repayments, many Americans are feeling especially financially strained. This can make the idea of a huge tax payment even more stressful. However, contrary to popular belief, not everyone actually needs to file their income taxes every year. In fact, there are a few key ways in which certain individuals can avoid the headache of filing their taxes altogether, but they are not without their own income limits and rules.

Your individual income type, age, and even your filing status (single, married, or even married filing separately all have different income thresholds) can affect how and if you even should file your taxes. To add to the complicated nature of your tax liability, each individual state also has its own thresholds and requirements for whether you need to file or not. Some states will actually require you to file a state income tax return with them even if you did not live or work there at any point during the tax year in question (for instance, if you receive rental income from a property in that state). On the flip side, seven states don't even have income tax at all (plus New Hampshire and Tennessee have a 0% income tax on earned income). If this all makes your head spin, you're not alone, but before spiraling into a tax blackhole let's take a look at who exactly doesn't need to file their income taxes.

Who doesn't need to file

There are a couple of ways a person would not need to file a tax return. First, if your annual income is less than your standard deduction amount (which, for 2023 will be anything less than $13,850 as a single taxpayer), you probably don't need to file a return. However, it's important to make sure you don't have a specific type of income that requires filing. For instance, self-employment income from freelance work can face heavy taxes since you are required to pay both the employer and employee portions of Social Security and Medicare tax. According to the Internal Revenue Service, the Self-Employment tax rate is 15.3% percent on 92.35% of your self-employment net earnings over $400.

Another way you don't have to file is if your only income is your Social Security benefits. However, any other income in addition to this could cause your Social Security benefits to then become taxable. According to the Social Security Administration, if your federal tax return income exceeds $25,000 as an individual or $32,000 as a married couple, you'll have to pay taxes on 85% of your Social Security benefits. Lastly, dependents claimed on someone's tax return also don't typically have to file taxes. This can apply to both children and adults, but this can be affected by earned income limits. If a claimed dependent earns more than their standard deduction (which would be the greater amount between $1,250 or their earned income plus $400) they would need to file.

Upcoming tax law changes

It's important to realize that the IRS will be implementing new tax laws for the 2023 tax year that can and will affect small businesses' tax liability. This can be especially relevant for small business owners and freelancers who use third-party digital platforms such as Amazon, Etsy, and eBay to manage their business. If your business receives more than $600 in income in the 2023 tax year, you will have to report it to the IRS. Some states, like Maryland, Massachusetts, Vermont, and Virginia have already lowered their threshold amount for reporting to $600 ahead of this particular policy, but it will become a mandatory country-wide rule beginning with the 2023 tax year.

This is also relevant for any businesses that might use digital payment applications like Venmo, Paypal, or Cash App for goods and services. The previous transaction reporting limit for these services was $20,000 over 200 transactions, so the lower income threshold change to $600 could end up causing significant sticker shock for a lot of small business owners come tax season. Keep in mind that small business owners do have access to a host of small-business deductions that could help offset their tax liability. Freelancers in particular should take advantage of the home office and/or rent deduction for the space needed and used to operate your business. Talking to a tax expert can be the best way to navigate how these changing tax laws might affect your business.