WHO MUST FILE A 2021 TAX RETURN?

Generally, you do not have to file a federal 2021 Form 1040, or 1040-SR, unless your “gross income” is at least –

FILING STATUS	ON 12/31/19 YOU WERE	GROSS INCOME
SINGLE	UNDER AGE 65	12,550
	65 OR OLDER	14,250
MARRIED FILING JOINT OR QUALIFYING WIDOW(ER)	BOTH SPOUSES UNDER 65	25,100
	ONE SPOUSE 65 OR OLDER	26,450
	BOTH SPOUSES 65 OR OLDER	27,800
MARRIED FILING SEPARATE	ANY AGE	5.00
HEAD OF HOUSEHOLD	UNDER 65	18,800
	65 OR OLDER	20,500

Your dependent child must file a tax return if –

* Unearned income (interest, dividends, capital gains, etc.) was over $1,100

* Earned Income (W-2 wages and self-employment) was over $12,550

* Gross income was more than the larger of $1,100 or earned income up to $12,200 plus $350.

“Gross income” means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Do not include any Social Security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2020 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). 

Gross income includes gains, but not losses, reported on Form 8949 or Schedule D.  If you are a sole proprietor filing a Schedule C, gross income is the amount reported on Line 7 of Part 1 – gross receipts less returns and allowances and cost of goods sold plus “other income”.  And if you are a landlord gross income includes the gross rents reported on Schedule E.

So, you see that the filing requirements are not based on actual "net" taxable income.  For any type of business income or capital gains the income before deducting any expenses or deducting the cost basis of investments sold is counted.  You must file a return to identify the expenses and cost basis.

The numbers for individual state income tax returns differ.  You may not have to file a federal return, but you must, or should, file a state return.  For example, the State of Pennsylvania is a gross income tax with no personal exemptions or standard, or itemized, deductions.  You must file a PA-40 and pay the 3.07% flat state income tax if “you received total PA gross taxable income in excess of $33”.  

Regardless of the amount of your gross income, you generally must file an income tax return for 2021 if -

* you had net self-employment income of $400 or more,

* you owe household employment taxes,

* you owe additional taxes on a premature retirement plan withdrawal,

* you failed to take a required minimum distribution from a retirement plan,

* you must repay the 2008 Homebuyer Credit,

* you owe Social Security and Medicare taxes on unreported tip income, or

* you did not receive an Economic Stimulus Payment in 2021 but were entitled to receive one or you received a payment that was less than the amount to which you were entitled, or

* you received an advance payment on the Premium Tax Credit.

There are times you should file a tax return even if you don’t have to -

1. To get a refund.  This is the most obvious reason.  If you do not have enough gross income to file a tax return you still need to file a return to get a refund of any income tax withheld or estimated tax payments, or to apply any of the tax to 2022.

2. If you are entitled to any of the refundable tax credits or refundable portions of tax credits – such as the Earned Income Credit, the Child Tax Credit, the American Opportunity Credit and the Child and Dependent Care Credit.

3. To establish or maintain a carryover of unused deductions or losses, such as a capital loss carryover, a carryover of IRA “basis” on Form 8606 (non-deductible IRA contributions), a carryover of unused home office deductions, or a carryover of suspended passive losses.

4. To “start the clock” on the 3-year audit statute of limitations.   The IRS normally has three years from the due date of a retur,n or the actual filing date, whichever is later, to audit a Form 1040. This is doubled to 6 years if you omitted 25% or more of your income. 

TTFN