Tax season means reconciling the taxes you paid on the income you earned the previous year. But what if you were unemployed? If you earned no income whatsoever, you may not be required to file a tax return at all. However, if you’re married filing jointly or you collected some income during the year, you still may be required to file, provided your income exceeded the minimum Internal Revenue Service threshold.
An unemployed person will be required to file an income tax return if annual earnings exceed a threshold. This threshold starts at $10,400 but varies depending on age and filing status.
Income Tax Return for Unemployed
If you were unemployed for even part of the tax year, you’re likely wondering if you need to file a tax return. The answer depends on your age, filing status and income. Whether you’re employed or not is not the IRS’s concern. They simply want to know how much you earned, how much you paid in taxes throughout the year and whether you qualify for any credits.
Before you file an unemployed tax refund, one easy way to determine whether you need to file at all is to use the IRS Interactive Tax Assistant. There you’ll be asked your marital status, filing status and a few questions about any income or benefits you received. If you, for instance, were unemployed but received Social Security benefits, you may still be required to file a tax return.
Income Threshold for Filing Taxes
The IRS sets a minimum income for filing taxes each year. This threshold varies from year to year, and also is different depending on your age at the end of the year in question. If your income for the tax year exceeds the threshold, you’ll need to file a federal tax return.
If you’re under age 65 and filing singly, you’ll need to complete a tax return if your income was $10,400 or greater. For those filing as head of household, that income limit rises to $13,400. Those 65 and older get a better break, though, with a threshold of $11,950 if you’re single or $14,950 for head of household.
Unemployed and Married Filing Separately
If you’re filing taxes unemployed this year, your household income will come into play. You may be unemployed, but your spouse may earn a salary. In this case, you have a choice. You can allow your spouse to file without you and file your own tax return, but if your salary is in the lower ranges, you’ll typically find you’re better off filing jointly.
With the current tax brackets, for instance, if your spouse made $50,000 during the tax year, the tax rate on those earnings will be 22 percent if he files separately. If, on the other hand, your spouse earns $50,000 and you file jointly, your tax rate will only be 12 percent. In this case, you’ll save 10 percent by filing as a couple, as long as your own yearly income isn’t high enough to bump you into the next tax bracket.
Taxes and Unemployment
If you’re eligible for unemployment payments during the tax year, that income will be part of your unemployed tax refund, as well. You don’t have to track what you’re being paid, as you should receive a Form 1099-G at tax time that will give you the information you need to report. Taxes should have been taken out throughout the year, but if you opted not to have them taken out, you’ll be responsible for paying it by April 15.
For those who are married, if it’s still early in the tax year, you can opt to have no taxes withheld when you’re filing taxes unemployed. This means your spouse needs to adjust her withholdings, though, to make up the difference. You can also pay taxes quarterly on your own rather than having it taken out of each unemployment check.
Tax Credits for Unemployed
One benefit of being unemployed is that you may be eligible for the Earned Income Tax Credit. When filling out your income tax return for the unemployed tax season, though, you’ll need to have earned at least $1 in order to qualify, and unemployment benefits don’t count. You also won’t be able to file separately if you’re married and want to request the EITC.
The EITC gives you between $519 and $6,431 in refundable tax credits on your return, depending on your income level and the number of dependents you have. Since it’s refundable, that means that even if you don’t owe taxes, you’ll get that money back in the form of a tax refund. If you don’t have children, the maximum you’ll receive is $519. Households with three children or more can be eligible for as much as $6,431, as long as their household income falls below $54,885, or $49,195 for heads of household and single filers.
If you have children, you may also qualify for the Child Tax Credit, which issues $2,000 per qualifying child as long as your household income falls below $200,000, or $400,000 for married couples filing jointly. Up to $1,400 of that amount is refundable.
Unable to Pay Taxes
If you’re unemployed, a big tax bill in April likely won’t be a welcome sight. If you owe, it’s important to file anyway. Failure to file can result in expensive penalties down the road.
You can file for an extension, but that doesn’t eliminate your obligation to pay the taxes due by April 15. The IRS offers several payment plans, including paying by credit card for a fee. But perhaps the best measure to take if you feel like your financial situation will improve soon is to ask the IRS for a payment plan. If you qualify, you may also be able to settle your tax debt for less than the full amount.
Perhaps the best option for a temporarily unemployed person, though, is to temporarily delay the collection process. You’ll fill out Form 433-F, a Collection Information Statement, and offer proof of your current financial status.
Self-Employment Tax Obligations
Although often there is no need for an income tax return for unemployed people, losing your job may mean you seek income from other sources. You may drive for Uber, for instance, or do some graphic design work on an online crowdsourcing platform. If you do choose these types of self-employment efforts, be aware that you’ll be responsible for paying taxes on the income you bring in.
Just as there’s an income threshold for filing taxes unemployed, there’s also a threshold for self-employment taxes. If you earn $400 or more during the tax year, you’ll have to report your earnings, even if you don’t receive a tax form from the person who paid you. And while your employer pays part of your Social Security and Medicare tax, as a self-employed person you’ll be responsible for the full amount.
If you’re working a side hustle after unemployment, track the money you’re making throughout the year. You’ll pay 12.4 percent of every dollar for Social Security and 2.9 percent for Medicare in addition to your income tax, which is based on your tax bracket. You can estimate how much tax that will be and pay quarterly estimated payments on it to increase your chances of receiving an unemployed tax refund or, at the very least, reduce your risk of owing in April.
- Bankrate: Do You Have to File Taxes? The Answer Depends on Your Age, Income and Filing Status
- IRS: Interactive Tax Assistant (ITA)
- Forbes: The New 2018 Federal Income Tax Brackets & Rates
- NerdWallet: Earned Income Tax Credit (EIC): What It Is and How to Qualify
- IRS: Get Ready for Taxes: Here’s How the New Tax Law Revised Family Tax Credits
- IRS: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
- IRS: Paying Your Taxes
- IRS: Topic Number 554 - Self-Employment Tax
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.