How Much Income Can Be Earned Before You Pay Taxes?

Making money is gratifying. It lets you pay your bills and maybe do a little discretionary spending besides. But tax day eventually rolls around, and the Internal Revenue Service expects its share of your earnings. Depending on several circumstances, including your age and whether you work for yourself or someone else, different rules determine how much you can earn before you must file a return and pay taxes. Not everyone is required to do so.

How Much Income Can Be Earned Before You Pay Taxes
Image Credit: jacoblund/iStock/GettyImages

Income Thresholds

The amount you can earn before paying taxes varies each year. It's hinged to standard deduction amounts, which are indexed for inflation and increase yearly. If you earn more than the standard deduction, you must file a return and pay taxes. Otherwise, you would report your income and then take these deductions; this would result in a zero or negative balance, so there would be nothing to tax. The standard deduction is $12,000 for a single taxpayer for the 2018 tax year, $18,000 for heads of household and $24,000 for a married couple filing jointly. This is a large hike from the previous year.

Rules for Dependents

Different rules apply if someone can claim you as a dependent on his tax return. You can't claim an exemption for yourself if you're a dependent, so you're limited to the amount of the standard deduction. That's $1,050 for 2018 or the sum of $350 plus your earned income, whichever is higher. If you have unearned income, such as income from interest or investments, speak with a tax professional about the different rules that may apply.

Tax Breaks for Seniors

If you're 65 or older and you're receiving Social Security retirement benefits, you don't have to include this income when determining if your overall earnings exceed the standard deduction and one exemption. The income thresholds increase for seniors, too. If you're unmarried, you can add $1,600 onto the standard deduction before you're required to file a return and pay taxes on the excess, bringing the standard deduction to $13,600; add $1,300 if you're married. But if you're married, you have to file a joint return with your spouse to get this break. Both you and your spouse must be 65 or older to gain the full benefit of the higher income threshold if you file a joint return.

Tax Brackets

Tax brackets determine what percentage of your income you must pay in taxes. Just like the standard deduction and exemptions, brackets are adjusted for inflation and change yearly. You must pay 10 percent of your first $9,525 in earnings as of 2018, but this is after you subtract any deductions you're entitled to and take exemptions. The percentage increases with your earnings, topping out at 37 percent if you make $500,001 or more. Bankrate publishes a chart showing the exact breakdown.

Self-Employment

If you're self-employed, you have much less wiggle room when it comes to filing a return. If you earn $400 or more from self-employment during the year, you must pay self-employment tax. This means you have to file a return, even for this negligible income, and you must include Schedule SE, which calculates the tax.

references