Tax Tips Tuesday: Six Essential Tax Questions for First-Time Filers

TTI box logo Six Essential Tax Questions for First-Time Filers
By The Tax Institute At H&R Block

First job. First car. First apartment. First tax return. These signal some of the rites of passage into adulthood. More than 5 million taxpayers will file their own individual tax return for the first time this tax season and they may not know where to start. Many first-time filers have been dependents on someone else’s return for close to two decades, but circumstances now dictate they are required to file a tax return.

Q. When is a taxpayer required to file a tax return?

A. Generally, anyone earning income should consider filing a return. However, filing requirements depend on a combination of circumstances, including filing status, income and age. For individuals just starting out, one of the biggest determining factors will be whether they are claimed as a dependent by their parents. This means taxpayers with nearly identical circumstances may have different requirements.

For example, a single 18-year-old who is claimed as a dependent, worked part-time jobs and earned $9,000 in wages and tips must file a tax return because this worker is not allowed to claim their personal exemption and only benefits from the standard deduction. Yet, if this person was not claimed as a dependent, filing would not be required because gross income did not exceed $10,000, which is the 2013 filing threshold for someone who files a return as a non-dependent single individual. The filing threshold for non-dependents is determined by adding the personal exemption and the standard deduction for the applicable filing status.

Workers who are not required to file a tax return because their income is below their filing threshold should file a return to get a refund of all taxes withheld and/or to claim other tax benefits, such as the Earned Income Tax Credit.

Q. What is the difference between a W-4 and a W-2?

A. Form W-4 is completed by the employee and is used by the employer to determine how much income tax is withheld from paychecks to cover tax liability. The amount of tax withheld is based on the number of withholding allowances an employee claims. Employees should adjust their withholding allowances when major life changes occur (e.g., change in household income, having a baby or buying a house); the number of withholding allowances is generally close to the number of exemptions claimed on tax returns.

Form W-2 is prepared by employers at the end of the year and reports wages paid and taxes withheld for the year so employees can use the information to file their tax returns. Employers mail Form W-2 in late January and some provide them online. W-2 information also is sent to the IRS and the Social Security Administration.

Q. Which 1040 federal income tax form do I use?

A. There are three versions of Form 1040: 1040EZ, 1040A and Form 1040. Form 1040EZ is for the least complex individual tax situations and Form 1040 is for the most complex.

Form 1040EZ may be used by taxpayers with no dependents, no itemized tax deductions, income from wages and unemployment compensation, and $1,500 or less in interest income. The only tax credit that can be claimed on Form 1040EZ is the Earned Income Tax Credit.

Form 1040A accommodates dependent exemptions, pension income and education credits.

Form 1040, “the long form,” may be used for any income level, self-employment income and all other types of income, itemized deductions and all personal credits.

Q. When are federal tax returns due?

A. The deadline for filing federal individual tax returns is typically April 15. This is also the deadline to request an automatic six-month extension to file, generally allowing taxpayers until Oct. 15 to submit a return without a late-filing penalty. To avoid late payment penalties and interest, any taxes owed must be paid by the April deadline.

Q. What do I do if I forgot to claim a tax benefit or omitted income?

An amended tax return can be filed any time of year to claim overlooked credits and deductions, include omitted income and correct the number of dependents claimed. To claim a refund, the original or amended return must generally be filed three years from the original due date of the return. For example, an amended return for tax year 2010 must be filed by April 15, 2014.

Q. Which is the better filing method – DIY or with a tax professional?

Do-it-yourself software and online tax programs select the appropriate forms and use everyday language, making tax law easier to understand. However, the assistance from a qualified tax professional can help put taxpayers of all income levels at ease and does not require any understanding of taxes. Ultimately, it is the taxpayer’s comfort level and personal preference that determine the best method.


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