How Much Money Do You Have to Make Not to Pay Taxes?

Federal income tax is a large source of revenue for the federal government. In fact, income taxes account for about 50% of the federal revenue. More than 120 million Americans filed a federal income tax return in 2020, but you may still wonder whether you make enough money to pay taxes.

Many factors go into whether you have to file federal income taxes, including your age and income threshold. In this guide, we'll take a closer look at how much money you have to make to file taxes and what factors might impact the amount of tax you pay each year.

Do You Have to Pay Taxes?

In general, most working adult citizens in the United States or residents of Puerto Rico have to pay taxes each year. An individual's specific tax situation is largely based on their age, income, marital status, and dependents.

This table breaks down whether you need to pay taxes based on your marital status, age, and gross income:

Source: IRS.gov

Below, we'll look at how your amount of income, age, the number of dependents, and Social Security influence whether you'll pay federal income taxes in the upcoming year.

How Income Impacts Taxes

To figure out your tax liability, start by looking at your gross income. More specifically, the Internal Revenue Service (IRS) defines gross income as "all income you received in the form of money, goods, property, and services that isn't 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)." In simpler terms, gross income refers to the amount of money you earn before anything is taken out for taxes or other standard deductions.

As you can see from the table above, usually all citizens whose gross income is more than $12,000 as an individual or more than $24,000 as a married couple must pay taxes on their earnings. Note that the income tax system is progressive and increases depending on how much you make.

How Age Impacts Taxes

Your age also influences whether you have to pay taxes. For those 65 years of age or older by the end of the tax year, you typically have to hit a slightly higher gross income than younger counterparts before you have to pay taxes.

It's important to note that the last day of the tax year is Dec. 31 for most taxpayers, which you need to consider when it comes to your age and filing. If you were born on Jan. 1, 1956, for example, you would be considered 65 at the end of 2020.

Note that if you're 65 years old, you're likely close to collecting Social Security benefits if not already. You can start collecting Social Security benefits as early as age 62, and you're entitled to full benefits when you reach your full retirement age. When it comes to tax filing, Social Security is taxable.

How Marital Status and Dependents Impact Taxes

Your family situation also plays a large role in your filing status — specifically whether you're married and claiming any dependents.

If you're the head of household, you're taxed based on whether you have dependents. According to the IRS, you can claim your child as a dependent if they are under the age of 19 or a "student" below the age of 24 by the end of the calendar year, known as the child tax credit. If your child is "permanently and totally disabled" or meets a qualifying relative test, there is no age limit.

According to tax law, for your child to qualify as a dependent, they must fit into these boundaries:

• Must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of these individuals
• Must be under the age of 19 or 24 if they are a student by the end of the year and younger than you (or your spouse) or "permanently and totally disabled"
• Must have lived with you for more than half of the year
• Must not have provided more than half of their own support for the year
• Must not file a joint return for the year in most circumstances

For any head of household with children who work, they're responsible for ensuring that the child has filed their taxes. In most circumstances, the child is responsible for filing their own tax return and paying any taxes. However, if for some reason a child can't file on their own, the parent or guardian must sign the child's name and the words "By (your name and signature), parent for the minor child."

Those wishing to claim a child or qualifying relative as a dependent can only do so if the following tests are met:

• Dependent taxpayer test: If the dependent is claimed by someone else, you can't claim them as a dependent.
• Joint return test: You can't usually claim an individual as a dependent if they're married.
• Citizen or resident test: Dependents should be U.S. citizens, U.S. resident alien, U.S. national, or residents of Canada or Mexico. There are several exemptions for this test, which include adopted children.

How Much Can a Small Business Make Before Paying Taxes?

All businesses are required to meet tax obligations to stay in good standing. In fact, businesses are legally required to pay taxes and keep consistent accounting records during the tax year. Even though many businesses choose the tax year to correspond with the calendar year, you can technically select your tax year when you first choose to file taxes.

Aside from federal taxes, small businesses must consider local taxes and state income taxes. Not every state requires an income tax, which is why it's important that you look up your state's tax obligations. As for federal taxes, the structure of your business impacts your tax rate. In general, there are five types of business taxes:

• Income tax: All businesses must pay an income tax return (except for partnerships) at the end of the tax year. Usually, employees have income tax withheld from their pay, as the federal income tax is a pay-as-you-go tax.
• Self-employment (SE) tax: The SE tax is for individuals who usually work for themselves and covers Social Security and Medicare taxes. In most cases, if you make more than $400 or more than $108.28 from a church or organization, you are required to pay the SE tax.
• Estimated tax: Typically, you're required to pay taxes on your income by making regular tax payments throughout the year.
• Employment taxes: If you have employees, you'll need to pay additional taxes, including Social Security and Medicare taxes, federal income tax withholding, and the Federal Unemployment (FUTA) tax.
• Excise tax: Under certain circumstances, filers are required to pay the excise tax. These circumstances include selling or manufacturing specific products, operating specific businesses, using different equipment, and receiving payment for certain circumstances. Excise taxes can be filed using Form 720.

How to Reduce Taxable Income

There are multiple ways in which individuals can reduce taxable income. In the next section, we'll cover some of the most impactful ways that you can reduce your taxable income.

Common tax advice to reduce your taxable income is by maximizing your retirement savings. Employer-sponsored plans, such as 401(k)s or 403(b)s, allow individuals to contribute up to $19,500 in 2021 without taxes. Additionally, for those aged 50 or older, they can make catch-up contributions to their retirement account of $6,500 above $19,500 to save even more before taxes.

Even those without an employer-sponsored plan can save for retirement using an individual retirement account (IRA). In 2021, the maximum amount that individuals can save is $6,000. For those aged 50 or older, they can contribute an additional $1,000.

Additionally, individuals should consider a flexible spending account (FSA). This type of plan allows you to put pre-tax money toward medical and other expenses. You can add money to your FSA through a separate account that your employer manages and contribute up to $2,750 without taxes.

Another option is to lower your taxable income with business deductions. This method is particularly useful for full-time or part-time self-employed taxpayers. For example, if you're self-employed and have a home office, you can reduce your taxable income by considering the amount of space in your home that you use for your office. Self-employed individuals can also deduct part of their self-employment tax by considering the cost of health insurance and other benefits.

Manage Your Tax Forms and Accounting With Skynova

Several factors determine whether you need to pay federal income taxes. In most cases, you'll need to pay an income tax on your earnings. Thankfully, there are several ways you can reduce your taxable income and save for the future by maximizing your retirement account savings, partaking in an FSA or health savings account (HSA), and applying business tax deductions if you can.

Filing taxes and worrying about paying the right amount can be difficult enough, which is why it's important to use the right software. Skynova's accounting software helps individuals and small businesses accurately record their income, expenses, sales tax, and any payments made for their business. With Skynova's products, you can streamline the tax process by referencing the necessary information saved to your account. Whether you're creating an invoice, purchase order, receipt, or bill of sale, Skynova has the right templates to improve your accounting process.