Being jobless is hard enough as it is, but having no income during tax season makes life even more stressful. What if you’re still taxed and facing a bill you have no way to pay off? If you’re currently unemployed and living without income, taxes are the last thing you want to think about.
If you’re wondering, “Do I need to file taxes if I have no income?”, you’ll first have to assess your financial situation for the last 12 months.
The IRS considers your earnings annually, so if you just lost your job a few months ago, then your income for the remainder of the year will have to be reported.
Let’s break down the no-income requirements for taxes as well as discuss your repayment options if you find out you owe money this year.
How Much Money Do I Have to Make to File Taxes?
The federal government only taxes income over a certain amount. The minimum filing amount will depend on your age. If your annual income is below the threshold for your age bracket, then you probably won’t have to file a federal tax return. Here’s a breakdown of the 2018 minimum income filing requirements:
- Single and under 65: $10,400
- Single and over 65: $11,950
- Married filing jointly under 65 (both spouses): $20,800
- Filing jointly age 65 or older (one spouse): $22,050
- Filing jointly age 65 or older (both spouses): $23,300
- Married filing separately at any age: $4,050
- Head of Household under 65: $13,400
- Head of Household 65 or older: $14,950
- Qualifying widow(er) under 65: $16,750
- Qualifying widow(er) 65 or older: $18,000
The IRS also has a useful “Do I Need to File?” online tool that will ask you a series of questions to help you determine whether or not you need to file a tax return this year.
What About Freelancers?
If you did work as an independent contractor at any point during the year, you may have to report your earnings to the IRS. You should receive a 1099 form through the mail if you did any work as a freelancer throughout the year.
The most common form for independent contractors is the 1099-MISC, which has a $600 minimum income filing requirement. If you file a 1099-MISC, you’ll generally have some greater freedom when it comes to writing off itemized deductions. Computer software, home office supplies, and even rent if you use your residence as an office can be deducted from 1099-MISC returns.
Do I Have to Pay Taxes on Unemployment Income?
If you lost your job and receive supplemental unemployment benefits from the company, these funds are considered taxable income and will have to be filed with the IRS. They will be reported using a W-2, the same as any standard income.
Any unemployment benefits from a private account to is only taxable if your payout is greater than the total amount you contributed to the fund. Private unemployment compensation must be reported on a 1040 as another form of income.
If you are currently collecting unemployment benefits, you will receive a 1099-G form by mail that will tell you how much you need to report on your tax return.
How to Pay Your Taxes When You’re Unemployed
If you file taxes and find out that you owe money to the government, don’t panic.
First, you can request an extension before the April 15, 2019 deadline and receive an additional six months to file your taxes free of charge. This will give you time to hopefully find another job or save up enough money to cover any taxes you expect to owe.
For those who have already filed and facing a bill, there are a few options.
First, a set up a short-term payment plan which can give you up to 120 days to fully pay your taxes.
Long-term repayment plans that extend beyond 120 days cost $31 to arrange online. You can have this fee waived if you qualify as in the low-income bracket by submitting a completed 13844 form.
In some situations, you can make an Offer in Compromise, in which you agree to pay the IRS a modified amount of what you owe. People who make this type of arrangement will be assessed based on a variety of circumstances including their income, living expenses, and ability to pay. The IRS states that they generally accept an offer amount when “the amount offered represents the most we can expect to collect within a reasonable period of time.”
The IRS must allow you to make arrangements if you demonstrate that you don’t have the ability to pay right now but can pay off your taxes within the next three years. You can also write a letter asking the IRS to abate your penalties if you explain the situation.
You shouldn’t take out a high-interest credit card or loan just to cover your tax bill. In general, the interest rates on taxes will be far lower than from a credit company or a lender. Don’t avoid filing, and don’t avoid talking to the IRS openly about your situation.
Many people panic over not being able to pay back their taxes right away for fear they’ll be incarcerated. You won’t be thrown in jail for not having enough money. The most important thing is to be transparent and communicate with the IRS so they understand your situation and prove you’re unable to pay your bill at this time.
How to Lower Your Tax Bill With Tax Credits When You’re Unemployed
If you have to file income this year, the good news is that there are some tax credits that may cover your balance completely. The Earned Income Tax Credit is worth up to $14,000 for a single filer. If you have a child, the EIC can be worth up to $39,296. Married filers can expect up to $20,430 of coverage if they don’t have any children, but even with one child, that amount rises to $44,486.
The Earned Income Tax Credit is also refundable, meaning you will be refunded any leftover amount after paying your taxes. This can be especially helpful when you’re unemployed and need the extra cash.
If you’re a parent, you may also be able to claim the Child and Dependent Care Credit, which is used to cover expenses you incurred while providing care for a child or dependent while you actively looked for work.
Unemployment Isn’t the End
It’s natural to feel discouraged and frustrated when you can’t find work. Any bill becomes a burden, and taxes are even more stressful than when you were employed.
Just remember that although this might be a rough season, you still have options to repay any taxes you owe. Even if you can’t pay off your balance right away, you can request an extension and work with the IRS to come up with a plan that has low interest and doesn’t cause you to lose what little income you may have.
Filing your taxes on time whether you are employed or not is crucial. Avoiding your taxes just because you can’t pay them only causes greater penalties and problems down the line. Talk to the IRS, explain your situation and be sure to itemize your deductions and claim any credits available to reduce your bill as much as possible.