How much money can you earn before you have to pay US Federal income tax?

August 15, 2004 11:40 AM

How much money do you need to make in a year before you have to start paying Federal income tax? Is there a magic number below which they just let you off the hook?
posted by scarabic to work & money (8 answers total)

It's about $8000 per individual.

The standard deduction is about $5000, and the personal exemption is about $3000.

Who must file a tax return.
posted by trharlan at 11:50 AM on August 15, 2004

Also, that number might be higher for some people who qualify for the Earned Income Tax Credit.
posted by trharlan at 11:56 AM on August 15, 2004

There is such a number, but if you had any kind of salaried job you had tax payments that you don't owe deducted from your paycheck and you'll want to do a tax return to get them refunded.
posted by jfuller at 11:59 AM on August 15, 2004

I never filed when I just had summer jobs in high school where the work was mostly cash jobs (helping people with their computers, etc.), even though I made quite a bit of money it was still less than $1,000.

I should mention that apparently someone I did do work for filed as a business expense in the state of Missouri. When I finally did get a real job in Missouri I got a bunch of letters indicating I did not file tax returns for such and such year. I simply wrote on the back an explanation and about two weeks later got a letter back saying I was alright and no longer a criminal.

Though to expunge upon jfuller's point, I actually owed more then what my employer took out because I have a somewhat unique situation of working in one state and living in the other. I got taxed twice basically and had to pay the government $70 come April 20th.
posted by geoff. at 1:07 PM on August 15, 2004

I hover around this line pretty much all the time. Until I got a regular part-time job this year I'd range between having a tax rate of 1-5% and negative 1-5%, meaning some years I actually got money from the government that I hadn't already paid them, thanks to the earned income credit and some attention to taxtime detail.

The range is about 10-11K for me. I've also been able to make somewhat more than that as a self-employed person and then taken deductions for stuff like professional conferences/travel, technology purchases, ISP fees, that will put me about at that range. There's a good blog started January of this year written by a guy who decided he didn't want to support the government's war in Iraq and so he vowed to earn exactly enough to not have to legally pay any taxes while still being able to support himself. I'll see if I can track it down. Granted, this is all about PAYING, but not about FILING which I've done every year.

And, I'm sure it goes without saying, I'd watch it about being creative with taxes just to avoid paying them. People with lower incomes and especially the self-employed seem to be audited at an inordinately high rate, so if you decide to go that way, make sure you're being on the up and up legally. That is, if things like audits worry you.
posted by jessamyn at 4:55 PM on August 15, 2004

Actually, the audits in the lower income groups tend to be for the Earned Income Tax Credit. It's much easier to audit people in the lower income groups than it is for the higher ones, simply because the poor have less places to hide their money.

If you don't plan on earning that much money, file an exemption from income tax withholding on the W-4. You have to earn less than the amount listed on the form though.
posted by calwatch at 12:10 AM on August 16, 2004

calwatch, that statement may be true, but the reason is that EITC fraud has exploded to alarming proportions, especially with tax refund loans that give people their money before they actually get it from the government. This gives shady tax operations an incentive to agree with a filer's lies, because they get paid this way, and many close up shop by the time the IRS gets down to, er, brass tax.

The unfortunate problem is that the EITC is good tax policy for a lot of reasons across the political spectrum. The only problem is compliance. It's frustrating to everyone.

scarabic, there is no one magic number. So many people make so much money and yet pay no tax at all that they invented the Alternative Minimum Tax. With numerous deductions available via Schedule A to the typical middle-class family, full deduction of business expenses (including depreciation) via Schedule C, full deduction of rental property expenses (also including depreciation) through Schedule E, and hundreds if not thousands of incentive-based tax loopholes, there is no shortage of ways to offset income in order to pay less tax. But you have to have a somewhat complicated life to earn these perks.

Singles, no kids, no house -- it's a lot harder. Don't overlook the Lifetime Learning, HOPE, and other education credits, though.
posted by dhartung at 1:50 AM on August 16, 2004

a taxpayer can earn $8,012 of taxable income in 2004 before paying any federal tax.

And I agree with everyone above. This quote is for a basic T4 income slip. A senior citizen or someone with medical problems likely could earn more income, earn more deductions and not pay any federal tax.

> Of course, if you feel guilty about not paying any tax, you can alleviate those feelings by endorsing your refund to the "Minister of Finance - Ontario Opportunities Fund"!
posted by philfromhavelock at 7:30 AM on August 16, 2004