You may have had federal income tax withheld from your pay all year, and wonder if you really need to file a return. Or you may think you didn’t make enough money to have to file a return. But it may not only be a requirement for you to file; it may also be to your advantage.
Pay-As-You-Go Tax
The U.S. federal income tax is a pay-as-you-go tax. Federal income tax is withheld from your wages, salary and other compensation for your work as an employee. Income tax may also be withheld from interest, dividends and other types of investment income. And taxpayers who have business income or other types of income may have to make estimated tax payments during the year.
The idea behind tax withholding and estimated tax payments is to ensure that taxpayers have met their income tax obligations throughout the year. The purpose of filing a tax return after the end of the year is to determine if any additional tax is owed, or if the taxpayer has overpaid his or her tax and is entitled to a refund.
The annual income tax return is where all actual income received during the year is reported, and the applicable provisions of the income tax law are applied in order to determine each taxpayer’s actual tax liability for the year, based on filing status, personal and other exemptions, tax deductions and credits.
Even though you have had tax withheld from your pay during the year, you will need to review the filing requirements that the Internal Revenue Service (IRS) publishes each year to see if you have to file a return. You should also keep in mind that it may be to your advantage to file a return, even if you are not required to file, so that you can receive a refund, if too much tax was withheld, or to claim certain tax benefits, such as the earned income credit.