Both minors and adults need to start paying federal income tax when their gross incomes exceed certain thresholds. These amounts vary each year and depend on whether you are under age 65 or not. There are also different rules governing self-employment income and unearned income derived from investments. Even if you don’t believe you owe any taxes, you might still want to file a return in case you are owed a refund.
For better or worse, one of life’s biggest milestones is starting to pay your taxes. It turns out that when you’re learning how and when to start paying taxes
, it has less to do with your age and more to do with how much income you earn. If you make a certain amount, you will be subject to filing a return and possibly paying income tax. Those thresholds do vary a little if you are 65 or older, filing jointly with another person, or self-employed. There are other variables to consider as well when filing and starting to pay taxes
. We’ll help you make sense of it all so you’ll know exactly when you should start filing your taxes.
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Income taxes for adults and minors
The IRS effectively classifies tax filers
into three different age categories: minors, adults, and 65+ (seniors). However, in terms of earned income, the requirements for adults and minors are similar.
Using the standard deductions in 2023 as an example, adults and minors need to start filing income taxes if their income is over $13,850 for a single filer. For seniors age 65 or older, the minimum income is $15,350. If adults file jointly, then they need to earn income in excess of $27,700.
Why is it only $400 if you are self-employed?
If you are a self-employed
single filer and you make over $400, you need to file a tax return. Why is this? If you make less than the income minimum for single filers, you won’t need to pay any income taxes. You will, however, need to pay Social Security and Medicare taxes, which are standard for any employer and are sometimes referred to as self-employment tax.
When you don’t need to file
As a general rule of thumb, adults do NOT have to file a tax return for federal income taxes if they meet the following requirements:
- You earned less than the standard deduction ($13,850 as a single filer and $27,700 for joint filers as of 2023)
- You made less than $400 in self-employment income
- You don’t owe any other taxes
- You or the joint filer did not receive distributions from an HSA, Medicare Advantage MSA, or Archer Savings Account
- You or your joint filer did not receive an advance payment for the health coverage tax credit or the premium tax credit
When you do need to file
Adults DO need to file income taxes if they meet the following requirements:
- You earned more than the standard deduction
- You’re married, but you and your joint filer or spouse are filing separate returns (and your gross income is $5 or higher)
- You made more than $400 in self-employment income
- You owe other taxes
- You (or your joint filer) received distributions from an HSA, Medicare Advantage MSA, or Archer Savings Account.
- You, your spouse, or a dependent received an advance payment for the health coverage tax credit or the premium tax credit.
The above deals with earned income derived from working at a job, being self-employed, or otherwise working for money in some respect. The IRS, however, has another category for what they consider “unearned income
.” According to the IRS, unearned income is as follows:
“Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions
. It also includes unemployment compensation, taxable Social Security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust.”
Unearned income comes primarily from investments. However, it could come from unearned distributions such as the Alaskan Permanent Fund. For adults, unearned income from investments will be combined with earned income to calculate their “gross income.”
Here are some examples of how those calculations might work.
Needs to file taxes
|Income from Social Security
|Income from work
|Dividend/income from investments
|Total gross income
Doesn’t need to file taxes
|Income from Social Security
|Income from work
|Dividend/income from investments
|Total gross income
Pretty simple. (Typically, if your only income is Social Security, you don’t include it in your gross income). However, for minors that earn unearned income, it’s a bit different.
Unearned income tax filing for minors
If a child or dependent has unearned income less than $1,150, then they do not have to file a tax return. However, if they make more than $1,150, they will need to do so with the following caveats:
- As long as the unearned income is less than $11,500, the parent can fill out IRS Form 8814 and report the income on their tax return. To qualify, the child must be under 19 or under 24 and enrolled as a full-time student.
- If the child’s unearned income is more than $11,500, then the child must file his or her own tax return with the IRS, called Form 8516.
When U.S. expatriates need to start paying taxes
During the Civil War, countless European passport holders, mainly from the United Kingdom and Ireland, tried to flee back to their own countries to avoid paying the Civil War tax. Due to this phenomenon, the U.S. government instituted a rule that if you have an American passport, you need to pay taxes, regardless of where you reside. So American passport holders are required to file income taxes every year. However, they do receive a yearly income exclusion they can use. Any income earned above the exclusion is subject to U.S. income tax. The IRS defines foreign-earned income under this exclusion as follows:
Foreign-earned income: Foreign-earned income means wages, salaries, professional fees, or other amounts paid to you for personal services rendered by you. It does not include amounts received for personal services provided to a corporation that represent a distribution of earnings and profits rather than reasonable compensation.
A qualifying individual may claim the foreign-earned income exclusion on foreign-earned self-employment income. The excluded amount will reduce your regular income tax but will not reduce your self-employment tax. Also, as a self-employed individual, you may be eligible to claim the foreign housing deduction
instead of a foreign housing exclusion.
U.S. expat income exclusion
Using 2023’s limits as an example, if you were living outside the U.S. and you earned over $120,000 as a single filer or $240,000 as joint filers, then anything above this amount would be subject to U.S. income tax. If you earned less than this amount, then you would still need to file a return but would not be liable for any tax.
The foreign tax income exclusion is used to ensure, above all, that you are not double taxed. However, you don’t need to prove to the IRS that you paid taxes in a different country to qualify for the exclusion. If you live in a tax-free or low-tax location like the Bahamas or Malta, it doesn’t matter. In that case, you might not pay any taxes at all under the $120,000 exclusion should you use it.
You might have to file, even if you think you haven’t earned enough
Again, filing with the IRS does not mean you pay taxes; you are just meeting their requirement to legally file your taxes
. You might owe taxes that you aren’t even sure about. If you are below the threshold but owe taxes for something other than income, you are still required to file. Some examples of this are Social Security taxes, alternative minimum taxes, or household employment taxes.
On the plus side, you may be due a refund that you didn’t even know about. For example, some low-income workers, with or without children, are eligible for the earned income tax credit
, or EITC.
What if I’m still not sure if I need to file or pay?
If you are unsure if you need to file or start paying taxes based on the information above, then you will probably want to speak to a professional
. The IRS has a multitude of programs available to help settle disputes and audit results. They also have a free tax assistance program for lower-income households.
If you and/or your household earn less than $54,000 a year, then you can qualify for the IRS’s Volunteer Income Tax Assistance Program
or VITA. VITA consists of non-profit organizations that are partnered with the IRS. If you are unsure of your filing status, VITA can offer free advice.
Get help with your taxes
If your head is spinning trying to figure out whether or not you owe any taxes or need to file a return, you may want to seek out the help of a tax preparation service. Here are some options to compare.
Do I start paying taxes at 18?
There is no age limit or requirement to file taxes. It strictly has to do with how much income you make and other variables. So if you are above the income threshold, even if you are younger than 18, you will need to start paying taxes.
How much do you have to earn to pay taxes?
You need to make at least as much as the standard deduction in a given year, or $400 if you are self-employed. This doesn’t mean you will or will not pay tax, though; it’s just the filing requirement. You could make more, however, but still not pay any tax if you qualify for various exclusions or tax credits
- Both adults and minors will need to start paying federal income tax if they exceed income thresholds, as well as other variables.
- You will need to file a tax return once you earn as much as the standard deduction, which was $13,850 for single filers and $27,700 for joint filers as of tax year 2023.
- For adults, unearned income from investments is calculated as part of their gross income. Minors with an unearned income of less than $11,500 can file their own returns or report the income on their parents’ tax return.
- Expats with American passports need to file income tax returns, but have an exclusion on foreign-earned income.
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