Hey Paul: As a single Mom of two kids and a modest income I don’t have any taxes withheld from my paycheck. I won’t receive a refund as I didn’t pay any taxes.
My total income for the year was about $22,000. Do I need to file a tax return by April 15th? If I do how much will it cost?
Living Free in America
I’ve got good news and better news for you. The good news is that you do need to file a tax return as only those with very low incomes are exempted. Why is this good news? As former Presidential candidate, Mitt Romney, callously noted four years ago – 47% of Americans pay no Federal Income taxes. The even better news for you is that many households with modest incomes like yourself actually get paid to live in the greatest nation in the world!
What does it cost to file? More good news – FREE! That is, it won’t cost you any money to file using any of the major tax preparers’ online forms. This includes TurboTax, H&R Block, and TaxAct (the one I personally use). These three companies also offer free KY state income tax returns! For a complete list of free providers and the income limits see http://revenue.ky.gov/FFAOffers.htm
As the recent commercials by TurboTax remind us – you don’t have to be a genius to file your taxes. However you do have to take some self-initiative to become part of the DIY crowd. The first step is collecting your information – you’ll have to do this regardless of whether you DIY or have a paid tax preparer. H&R Block has a comprehensive list of forms – see goo.gl/WdAvJp. The long list can look imposing but most people have only a handful of items to collect – for workers like yourself a W2 from your employer or 1099-MISC for contract work are the most important items. You could have other items like alimony received, IRA contributions, “Obamacare” forms and perhaps a few others.
Retirees may have social security (SSA-1099), pension and retirement withdrawals (1099-R). Business owners are required to document revenues and expenses. Investors with dividends or gains or losses from sales will have various 1099 forms. If you have relatively significant mortgage interest expense and charitable gifts then you may deduct these through itemization. Sounds messy but just answer the questions the tax prep program asks!
I realize that you like many people may be apprehensive about trying to do your own taxes. I can picture my Mom working skillfully through the paper forms with pencil and calculator at the kitchen table when I was growing up. If you had to navigate today’s tax code by reading the IRS instruction booklets then I’d say pay someone to save you several hours of work and the strong likelihood you’d make an error.
However today’s online software makes it easy – if you’ve ordered a pizza from Papa John’s you can do your own taxes. Once you’ve got your information organized it will likely take less than an hour to complete the online tax forms. That may save your over $200 in having someone else do your taxes – not a bad deal for an hour’s effort.
If you truly have math or technology anxiety then there are several terrific local services that provide free tax preparation services. Check out the United Way site
http://www.unitedway.org/myfreetaxes/KDVA or call 1-855-MY-TX-HELP to see when and where free tax services are provided.
To give you an idea of how things will turn out I ran what I know about you through TaxAct and have the following positive news to report. You are entitled to Federal “refund” of a whopping $6648 and a KY tax owed of $276. The key to your federal refund is the Earned Income Tax Credit (EITC) of $4724 – the government subsidizes work rather than taxing it over a range of modest incomes. Secondly, for each child a tax credit of up to $1000 applies that is refundable as your income is high enough. These tax credits are not big secrets yet a lot of people in your situation do not file or file incorrectly and miss out on a lot of money. If you have missed out in past years it is possible to file amended returns and recoup the full tax refund due to you.
I’ll be holding tax preparation workshops at the Jessamine Public Library Saturday mornings in March at 10:40am. Bring your laptop or tablet and we’ll work through the details together.
Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.