What Happens If You Dont File A Return
What happens if you fail to report income this year? You wont get arrested. The IRS doesnt have any tax police out looking for non-filers. But, eventually, bad things will likely happen and get worse over time. Sooner or later, the IRS will probably discover you should have filed a return. This usually happens because third parties reported to the IRS payments they made to you. This could be any of the following:
- Salary an employer reports on Form W-2,
- Income you earned as an independent contractor reported by your clients on Form 1099-MISC, or
- Interest income reported by a bank or other financial institution on Form 1099-INT
IRS computers will check and see if you reported this income on your timely filed tax return. If there is no return on file, the IRS will send you a notice called Notice CP 59, First Notice Request for Your Tax Return. This form demands that you file a tax return and pay any tax due. In addition to the taxes you should have paid, youll owe interest and penalties. These can be severe. As much as 25 percent of your unpaid taxes.
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What Is The Minimum Income To File Taxes In Canada
Anyone who earned income in a calendar year must file taxes. Technically, there is no minimum income. Even if you didnt earn anything, its best practice to complete a tax return annually.
With that said, your tax payable will vary based on how much you earned. Canada has a tiered taxation system. This means the more you earn, the more taxes you pay. Below are the federal tax brackets for 2021:
15% on the first $50,197 of taxable income
20.5% on the next $50,195 of taxable income
26% on the next $55,233 of taxable income
29% on the next $66,083 of taxable income
33% of taxable income over $221,708
The provinces and territories have their own personalized tax brackets as well. In addition to federal taxes, you owe provincial or territorial taxes. Learn more about provincial and territorial tax brackets.
Why Claim Someone As A Dependent
If you have a family, you need to know how the IRS defines dependents for income tax purposes. Why? Because it could save you thousands of dollars on your taxes.
For tax years prior to 2018, every qualified dependent you claimed could reduce your taxable income by up to the exemption amount, equal to $4,050 in 2017. This could add up to substantial savings on your tax bill.
Beginning in tax year 2018 and going through 2020, exemption deductions were replaced by:
- an increased standard deduction
- a larger Child Tax Credit
- a bigger Additional Child Tax Credit
- as well as a new , worth up to $500 per qualifying dependent
For your 2021 tax return that you’ll prepare in 2022, the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3,600 or $3,000 depending on the age of the child. The credit is also fully refundable for 2021. To get money into the hands of families faster, the IRS sent out advance payments of the 2021 Child Tax Credit beginning in July of 2021.
For tax years 2018 through 2021, the Other Dependent Credit for qualifying relatives is $500.
Dependent rules also apply to other benefits such as:
- the Child and Dependent Care Credit for daycare expenses
- medical expenses, various other itemized deductions and most tax credits that involve children or family issues
Qualifying for these benefits can make the difference between owing money and receiving a refund.
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When Do You File Your Return
Personal income tax return filings and payments are due on April 30, 2022. If you are self-employed, you have until June 15, 2022, to file and pay.
Any contributions made to an RRSP reduce your taxable income by the same amount. If youd like to take advantage of this, you have until March 1, 2022, to make a contribution and still report the deduction on your 2021 taxes.
The CRA opened NETFILE on Feb 21, 2022.
When You May Want To Submit A Tax Return To Claim A Tax Refund
With all the above being said, there are years when you might not be required to file a tax return but may want to. If you have federal taxes withheld from your paycheck, the only way you can receive a tax refund when too much was withheld is if you file a tax return.
- For example, if you are a single taxpayer whos only income is earnings of $2,500 from a job, with $300 withheld for federal tax, then you are entitled to a refund for the entire $300 since you earned less than the standard deduction.
- The IRS doesn’t automatically issue refunds without a tax return. So if you want to claim a tax refund then you should file a tax return.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.
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Dependents May Have To File
If you are a dependent of another taxpayer, then you follow a different set of rules.
The rules determining whether a dependent needs to file a tax return are somewhat complicated, but Ill try my best to keep it simple. Dependents who are under 65 and have unearned income over $1,100, or earned income over the standard deduction of $12,550, must file a tax return.
That parts pretty easy. Heres where it gets more complex: If you received both earned and unearned income in 2021, you must file a return if your combined income adds up to more than the larger of $1,100 or total earned income plus $350.
For example, 18-year-old Danielle is claimed as a dependent by her parents. In 2021, she received $200 in unearned income from taxable interest from an investment and also earned $4,050 from her part-time job at the library. Danielles unearned income and earned income each fall below the individual thresholds. Her total income of $4,250 is also less than her earned income plus $350 . Since all three of these factors apply, Danielle does not have to file a 2021 tax return.
Still confused? Understandable. Basically, if you are a dependent and have both earned and unearned income you have to file a tax return if your total income was more than $1,100 and your unearned income was more than $350.
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Use Online Tax Software
These days, you can DIY your tax return and save a bundle on tax filing fees. Online tax software, like TurboTax, makes it easy: you can instantly import tax information from the Canada Revenue Agency with Auto-Fill my return. The software includes a complete list of tax deductions to make it easy for customers to find the deductions that apply to them.
Once your information is entered, a review section offers suggestions on credits and deductions that may apply to your situation, as well as ones that definitely apply. The software then asks simple questions to determine if you qualify and applies credits and deductions automatically based on your responses.
The bottom line? TurboTax offers a cheap and easy way to file your taxes and get the most out of your tax return. Whether youve got a straightforward tax return or a complicated one involving business income and expenses, TurboTax has software suited to your needs at an affordable price. In particular, TurboTax Self-Employed is the only software in Canada designed specifically for people with self-employed income and provides expert guidance specific to these individuals.
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Other Tax Filing Requirements
âOkay,â youâre saying to yourself, âI donât make enough to have to pay taxes! That means Iâm done, right?â
Not necessarily. Youâll still need to file if:
- ðµ You owe Social Security or Medicare tax on tips you didn’t report to your employer, or on wages you received from an employer who didn’t withhold these taxes
- ð° You owe uncollected Social Security, Medicare, or railroad retirement tax on tips you did report to your employer
- 𧾠You owe taxes on on group-term life insurance coverage over $50,000
- ð You owe recapture taxes
- ð¥ You received Archer MSA, Medicare Advantage MSA, or health savings account distributions
- ⪠You had wages of $108.28 or more from a church or qualified church-controlled organization thatâs exempt from employer Social Security and Medicare taxes
- ð· You, your spouse, or a dependent received advance payments from the health coverage tax credit
Who Is Eligible For Standard Deduction In Income Tax
Standard deduction is available upto Rs 50,000 in a financial year. However, you can claim this deduction only once. For example, if you have worked with two employers during the year, your standard deduction will be limited to Rs 50,000 and is a standard deduction available only on salaried income.
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How Does The Cpp Work
You will contribute towards the CPP from your employment earnings from age 18 to 70. The CPP Investment Board then invests CPP funds. Once you retire, you will then receive a monthly retirement pension that is equal to a certain percentage of your lifetime average earnings.
The base CPP benefit provides a monthly pension of up to 25% of your contributory earnings for the best 40 years of earnings. With changes enhancing CPP contributions, the monthly pension amount can rise to up to 33.33% of your contributory earnings. This pension amount counts as income, and so you must pay income tax on your CPP benefit.
The earliest that you can receive your retirement pension is when you turn 60 years of age. If you have a disability, you may receive the CPP disability benefit if you are under the age of 65, or the CPP post-retirement disability benefit if you have already started to receive your CPP retirement pension.
If you start receiving your pension between 60 and before you turn 65, your pension amount will be permanently reduced at a rate of 0.6% for every month before age 65, for a maximum reduction of 36%.
Every month after age 65 permanently increases your pension amount by 0.7%, up to a maximum of 42% when you turn 70.
Larger Budget Deficits Historically End With Increased Income Taxes
Like you, the Government of Canada must earn income to fund expenses. The government earns income through taxes, such as on income, corporations, capital gains and sales tax. The government invests in social projects, infrastructure, education and more with this income. The balance between income and expenses is known as the federal budget. When the costs are higher than income in a given year, there is a budget deficit. If income exceeds expenses, there is a surplus.
If there is a deficit, the government must borrow money to make up for the difference in expenses. To borrow money, the government issues T-Bills which you can think of as IOU notes that the government promises to repay in the future. To pay off debt, the government generally needs to increase income, which means higher taxes. Personal income taxes are a crucial part of the government’s revenue. At its peak, they made up 40.8% of federal revenue in 1990. The following section will explore the history of personal income tax changes in Canada related to the federal budget.
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What Age Can I Stop Filing Income Taxes
Age has less to do with whether you need to file than what your gross taxable income is. Generally, if Social Security is your only income source you may not need to file.
If you have additional income not exempt from taxation, you will need to find out what is the minimum income required for filing taxes. This total can change each year. For reference purposes, the minimum income in 2019 for seniors not married was $13,850, and seniors married filing jointly $27,000.
A financial advisor can help you identify sources of retirement income that are subject to being taxed.
What Qualifies Someone As A Dependent
The IRS rules for qualifying dependents cover just about every conceivable situation, from housekeepers to emancipated offspring.
Fortunately, most of us live simpler lives. The basic rules will cover almost everyone. Heres how it all breaks down.
There are two types of dependents, each subject to different rules:
- A qualifying child
- A qualifying relative
For both types of dependents, youll need to answer the following questions to determine if you can claim them.
TurboTax Tip: The inclusion of qualified dependents on your tax return is one of the best tax benefits available. It can open the door to many tax credits and deductions that can lower your tax bill.
Qualifying child
In addition to the qualifications above, to claim a qualifying child, you must be able to answer “yes” to all of the following questions.
- Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
- Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There’s no age limit if your child is permanently and totally disabled.
- Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
- Do you financially support them? Your child may have a job, but they cannot provide more than half of their own support.
Qualifying relative
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Minimum Gross Income Thresholds For Taxes
The IRS defines gross income as anything you receive in the form of payment thats not tax-exempt. Gross income can include money, services, property, or goods. The thresholds cited here apply to income earned in 2020, which you must report when you file your 2020 tax return in 2021.
In a practical sense, the limits are equal to the years standard deduction, because you can deduct this amount from your gross income and only pay income tax on the difference. You would owe no tax and would not be required to file a return if youre single and earned $12,400 in 2020, because the $12,400 deduction would reduce your taxable income to $0. But you would have to file a tax return if you earned $12,401, because youd have to pay income tax on that additional dollar of income unless you had applicable tax credits you could use.
As of the 2020 tax year, these figures are:
| Single under age 65 |
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Valid Social Security Number
To qualify for the EITC, everyone you claim on your taxes must have a valid Social Security number . To be valid, the SSN must be:
- Valid for employment
- Issued before the due date of the tax return you plan to claim
For the EITC, we accept a Social Security number on a Social Security card that has the words, “Valid for work with DHS authorization,” on it.
For the EITC, we dont accept:
- Individual taxpayer identification numbers
- Adoption taxpayer identification numbers
- Social Security numbers on Social Security cards that have the words, “Not Valid for Employment,” on them
For more information about the Social Security number rules for the EITC, see Rule 2 in Publication 596, Earned Income Credit.
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How Much Money Do You Have To Make To File Taxes
The amount of money you have to make to file taxes varies based on a number of factors, including your filing status, marital status, age, and whether or not you can be claimed as a dependent on another persons return. Businesses are required to file a tax return regardless of their income, and freelancers must also file if they earn an income of $400 or more from a single employer.
What If I Only Receive Social Security Benefits
In most cases, if you only receive Social Security benefits you wouldn’t have any taxable income and wouldn’t need to file a tax return.
One catch with Social Security benefits is if you are married but file a separate tax return from your spouse who you lived with during the year. Then you will always have to include at least some of your Social Security benefits in your taxable income to see if it is greater than your standard deduction. If your taxable income is greater than you standard deduction, you would need to file a return.
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Can I Still Get A Refund If No Federal Taxes Were Withheld
Filing for refunds If you don’t owe tax at the end of the year, but had taxes withheld from paychecks or other paymentsfiling a return may allow you to obtain a tax refund. You may also be eligible for certain refundable tax credits, like the Earned Income Tax Credit , which could generate a refund for you.
Its Not Too Late To File Your Tax Return
Although the regular tax season is over, you can still file a late tax return until October 15, 2022. If you do not file you may miss out on a refund or any tax credits for which you may be eligible.While theres no penalty for filing late if you do not owe taxes, you could face fees and penalties if you do owe for 2021. The information below can help you navigate this process and complete your return before the final deadline.
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