Tax Week: What First-Time Tax Filers Need to Know
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Here's your money briefing for Friday, March 12th. I'm J.R. Whelan for The Wall Street Journal. All this week, we've been looking at some of the important tax issues that came to the forefront over the past year.
Do I have to file a federal tax return as a first-time filer?
Today, we wrap up our special Tax Week series by putting out the welcome mat for people who are filling out their tax returns for the first time.
I'm sorry to say it. It's part of being a grown-up, paying your taxes, but also keeping all your records. You just got to do it.
Doing your taxes can always be intimidating, but newcomers are doing it after an especially unusual year. Coming up, our tax reporter Laura Saunders will take us through all the basics. Tax withholding, how student debt is handled, gig work, even ways of filing for free. That's after the break.
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Every year, millions of Americans who've landed their first job join the rest of us in taking on an annual Rite of Spring, filling out an income tax return. And after the year we all had, a little help can go a long way. So our tax reporter, Laura Saunders, is here with some ways to make filing taxes a little less intimidating. Laura, thanks for being here.
Well, thanks so much for having me.
So, Laura, I guess the first thing that we can say to first-timers is, hey, welcome to the party.
Yeah, you might be doing this for a very long time, but it also means you're kind of a grown-up.
So let's first talk about if they actually need to file federal income taxes. New workers with entry-level or part-time jobs might not even make the cutoff. So how much money do people have to earn in a year before they have to file taxes?
Well, the answer is complicated, just like everything with taxes. One good rule of thumb is $12,000 because that's the amount of the so-called standard deduction. But if you're a gig worker, you might need to file and pay Social Security taxes at a much lower level. I think it's a few hundred dollars. Even if you don't owe income taxes, you might owe Social Security taxes. And the other thing is that it's probably a good idea to file because you might be getting money back. You know, if you had an employer and the employer withheld on your wages and things, you could get a check from Uncle Sam. And also then the government knows where you are. Just, you know, they're about to do the third round of stimulus payments.
And if you file, they're sending those out based on tax returns and addresses and things like that. So if you have the option, it's probably not a bad idea to file.
Okay, I'll get to gig workers in a moment, but you also mentioned employer withholding, where taxes are automatically taken out of your paycheck or withheld. And with the economy still recovering, every dollar counts for a lot of people. Can the amount that's withheld be adjusted?
Yes. The basic rule is that you need to pay about 90% of what you owe during the year or shortly after. Whether you pay it quarterly through estimated taxes or paycheck withholding, which is what a lot of people do, but you need to pay about 90%.
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