How to file taxes: your complete guide

Knowing the basic terms and forms can make tax season a lot less stressful

Derek Silva

Derek Silva

Published March 17, 2020

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KEY TAKEAWAYS

  • Your federal tax return tells the U.S. government how much income you earned, how much tax you already paid, and how much you were supposed to pay

  • For most people, filing your taxes requires completing IRS Form 1040 and attaching any necessary forms

  • You can file your 2019 taxes at any time between Jan. 27, 2020, and Jul. 15, 2020

  • People with income of less than $69,000 qualify to file taxes online at no cost, through the IRS Free File program

Almost all workers (and businesses) in the U.S. need to pay federal income taxes to the Internal Revenue Service (IRS). To show that you’ve paid your fair share, you will need to file an annual tax return. Your return shows how much income you earned during the year, how much income tax you were supposed to pay on it, and how much you actually paid. If you overpaid, as most people do, you’ll get a tax refund. If you underpaid, you will owe more.

You can file your 2019 taxes between Jan. 27, 2020, and Jul. 15, 2020. Tax Day normally falls on Apr. 15, but due to the coronavirus (COVID-19) outbreak, the federal government has extended the deadline by 90 days.

Almost everyone uses Form 1040, the basic tax form. The form walks you through calculating how much you earned and then helps you make income adjustments. Adjustments are expenses you made that the government allows you to exclude from your annual income, and they take the form of either tax deductions or tax credits. Claiming any of these will require you to add more forms.

The forms and process have changed a bit in recent years, most significantly after the Tax Cuts and Jobs Act of 2017, but this has actually simplified the process in some ways. This guide will explain everything you need to know about how to file your taxes.

In this article:

Background: the basics of tax filing

It’s useful to know what your tax return is for and why you have to file it in the first place. To get you started, here are three important tax terms you should know:

  • Filing is synonymous with sending something to the proper recipient. When the IRS says to file a form, it just means send it to the IRS.
  • When you claim something on your tax return, it means that you qualify to get it and you are taking it. For example, claiming the earned income tax credit just means you’re taking the credit. Claiming a dependent means someone qualifies as your dependent and you’re treating them as such on your taxes.
  • Some tax forms are called schedules. This has nothing to do with the calendar and is just another word for form.

Why we file tax returns

All workers in the U.S. (with only a few exceptions) have to pay federal income taxes. Instead of paying your whole tax bill at once, the federal government requires employers to remove a portion of your annual tax bill from each of your paychecks. Removing those taxes from your paycheck is known as withholding.

Your employer knows how much to withhold based primarily on your W-4 form. It includes your personal information, like how much you expect to earn over the upcoming year. Employers send the withheld taxes to the IRS, the federal bureau in charge of collecting income tax. The IRS tracks how much every person, company, and organization has paid.

If you’re self-employed or don’t have an employer that withholds taxes, you still need to withhold taxes from your pay. You do this through estimated tax payments. Estimated taxes are quarterly payments you make to ensure you pay the income taxes you owe.

At the end of the year, everyone who owed income tax needs to confirm to the IRS that they paid enough tax during the year. You do this by filing a tax return. Your tax return is a form that details how much income you earned, how much tax you already paid, and how much you were supposed to pay. You will also see the process of filing a tax return called filing your taxes. Married couples can file a joint return that covers both spouses.

Most people overpay income taxes throughout the year, and so the IRS gives them a tax refund. If you underpaid, you will have a tax bill and need to pay the IRS what you still owe. There are also fees if you underpaid by too much or if you don’t pay your bill on time.

When to file your tax return

Each of your tax returns covers one tax year. For almost all people, the tax year is just the standard calendar year, January through December. For the rest of this article, when we say tax year, we mean the calendar year unless we state otherwise.

You will file your federal income tax return early the following year. You file your 2019 tax return in early 2020, but it’s still called your 2019 taxes. Each year the IRS sets the date when it will start accepting returns, but it’s usually in the last week of January. (File as soon as possible to help avoid tax identity theft.)

In 2020, the first day you can file taxes for 2019 is January 27 and the deadline to file your return is July 15, Tax Day. (If Tax Day ever falls on a weekend or holiday, the deadline is the next business day.) _Note that the tax deadline usually falls on April 15, but due to the coronavirus (COVID-19) pandemic, the Trump administration has extended it by 90 days, to July 15.

The time period when you can send in your tax return is called tax season. There is no set length to tax season since the IRS may not start accepting returns on the same date, but the end date doesn’t change.

The exception to the Tax Day deadline is if you file for a tax extension. A tax extension gives you until October 15 to file your tax return. But you need to ask for an extension by filing the correct IRS form by the usual deadline (July 15 in 2020, but April 15 typically). However, if you owe a tax bill and get an extension, you still need to pay your bill by Tax Day or you will incur fees. An extension only gives you more time to send in your tax return.

(Businesses often have a tax year that’s different from the calendar year. A “tax year” is technically just a 12-month period and the IRS allows businesses to use a period different from the calendar year for accounting purposes. Many companies define their tax year as their fiscal year, which usually coincides with the end of a business quarter.)

Learn more about other common types of taxes besides income tax.

Who has to file a tax return

Most people with income in the U.S. need to file a tax return. Whether or not you need to file depends on your total annual income (gross income), filing status, age, and whether you are someone’s dependent.

As a general rule, file a return if your total income was more than the value of your standard deduction, which was $12,200 for an individual in 2019 (and $12,400 for an individual in 2020). The table below lists the filing thresholds for most people in 2019.

Income thresholds for filing 2019 taxes

Filing statusAgeGross income
SingleUnder 65$12,200
Single65 or older$13,850
Married filing jointlyBoth spouses under 65$24,400
Married filing jointlyOne spouse 65 or older$25,700
Married filing jointlyBoth spouses 65 or older$27,000
Married filing separatelyAll ages$5
Head of householdUnder 65$18,350
Head of household65 or older$20,000
Qualifying widow(er)Under 65$24,400
Qualifying widow(er)65 or older$25,700

If someone claims you as their dependent, you generally need to file a return if your total annual income was $1,050 or more. That income limit is $2,700 if you are over age 65 or blind. IRS Publication 501 explains dependents’ income limits in more detail.

Even if you fall under the income thresholds above, you should file a tax return if you’re eligible for certain tax credits that offer a refund. We cover refundable tax credits in a later section, but you should file if you can get any of these credits:

  • Earned income credit
  • Additional child tax credit
  • American opportunity credit
  • Credit for federal tax on fuels
  • Premium tax credit
  • Health coverage tax credit

Gather your tax forms

You will need certain financial information in order to complete your tax return. Gather the following documents before you file your return. If you’re expecting a document and haven’t gotten it by mid-February, reach out to the sender.

  • W-2 forms: Your employers use this form to report how much you earned and how much tax it already withheld. If you have multiple employers who withheld tax, you will get a W-2 from each of them. Companies must mail all W-2s by January 31, so you should have yours by early February.
  • 1099 forms: A 1099 reports money that you earned outside of what employers report on a W-2. There are dozens of versions based on the type of income. Some common forms have income from interest (1099-INT), dividends (1099-DIV), Social Security benefits (SSA-1099), distributions from pensions or IRAs (1099-R), and other income such as from self-employment (1099-MISC). Almost all 1099s must be in the mail by January 31, so you should have yours by early February. (Learn more about 1099 forms.)
  • 1098 forms: Interest payments and expenses you can deduct, like mortgage interest and tuition expenses
  • Any documents, forms, or receipts with other income you made during the year. This could include rental income, income from an installment sale, or lottery winnings.
  • Documents for any taxes you have already paid, including estimated tax payments, property taxes, or state and local income taxes.
  • Last year’s tax return, but more specifically your adjusted gross income (AGI). The IRS uses your AGI from last year’s return to verify your identity.
  • Your bank account number and bank routing number to direct deposit any refund you may receive. (Read more about how to use direct deposit.)

If you have any dependents, make sure you have their dates of birth and Social Security numbers (SSNs) or Individual Taxpayer Identification Numbers (ITINs). Also gather any documents detailing child support or alimony payments.

(Learn about filing taxes after a divorce.)

Figure out your filing status

Your filing status determines your tax rates, your filing requirements, eligibility for tax credits, and the amount of your standard deduction (more on that later). There are five filing statuses and yours mostly depends on your marital status on the last day of the tax year. If you qualify for multiple statuses, this brief guide will help you choose the best one for you.

  • Use the single filing status if you aren’t married or are legally separated on the last day of the year. Individuals who use this status are called single filers. Single filers with dependents may qualify for the head of household status.
  • The head of household (HOH) status is for individuals who aren’t married and paid more than half the annual cost of maintaining a home for themselves and a qualifying dependent.
  • The married filing jointly status is for a married couple that is completing one return to cover both spouses. If you’re married, this is usually the best filing status to use. You get a higher standard deduction and it’s likely that you’ll pay less tax overall than if you file separately. People using this status are called joint filers.
  • Married filing separately (MFS) is for people who are married but want to file a separate return from their spouse. The main reasons to use this status are if you’re concerned that your spouse is evading taxes and you don’t want to be held liable, if you can get higher itemized deductions by filing separately, or if one spouse has debts that are subject to either refund seizure or an income-based payment (like student loans). Most married couples should just file jointly.
  • You can use the qualifying widow(er) (QW) status if your spouse died within the last two years, you haven’t remarried, and you have a dependent child. This status treats you as if you’re filing jointly, so you can deduct more and pay lower rates than filing as single.

If you qualify for multiple statuses and still aren’t sure which you should use, consider filling out the 1040 multiple ways see how much you’d have to pay. Yes, that’s extra work, but it shouldn’t be very difficult if you’re using an online filing service. It also won’t cost anything more as long as you fill out the forms but don’t actually send them to the IRS.

Learn more about how to choose a filing status.

What’s my tax bracket?

How much you pay in income tax depends partially on your tax bracket. The U.S. has seven marginal tax brackets that range from 10% up to 37%. Each tax bracket has a lower and upper limit (in other words, margins). You only pay the tax rate on the amount of your income that falls within that bracket.

For example, on 2019 taxes, single filers pay 10% on their first $9,700 and 12% on every dollar they earn between $9,700 and $39,475. So if a single filer has an income of $38,700, they pay a 10% tax on $9,700 of it and then 12% on the remaining $29,000. You would say this tax filer is in the 12% tax bracket. Not all of their income is taxed at 12%, but that’s the highest marginal rate they pay.

The tables below show the 2019 income tax rates and the income ranges they apply to.

2019 tax brackets: single filers

TAX RATEINCOME RANGE
10% of every dollar earned between$0 and $9,700
12% of every dollar earned between$9,700 and $39,475
22% of every dollar earned between$39,475 and $84,200
24% of every dollar earned between$84,200 and $160,725
32% of every dollar earned between$160,725 and $204,100
35% of every dollar earned between$204,100 and $510,300
37% of every dollar earned above$510,300

2019 tax brackets: joint filers & qualified widow(er)s

TAX RATEINCOME RANGE
10% of every dollar earned between$0 and $19,400
12% of every dollar earned between$19,400 and $78,950
22% of every dollar earned between$78,950 and $168,400
24% of every dollar earned between$168,400 and $321,450
32% of every dollar earned between$321,450 and $408,200
35% of every dollar earned between$408,200 and $612,350
37% of every dollar earned above$612,350

2019 tax brackets: married filing separately

TAX RATEINCOME RANGE
10% of every dollar earned between$0 and $9,700
12% of every dollar earned between$9,700 and $39,475
22% of every dollar earned between$39,475 and $84,200
24% of every dollar earned between$84,200 and $160,725
32% of every dollar earned between$160,725 and $204,100
35% of every dollar earned between$204,100 and $306,175
37% of every dollar earned above$306,175

2019 tax brackets: head of household

TAX RATEINCOME RANGE
10% of every dollar earned between$0 and $13,850
12% of every dollar earned between$13,850 and $52,850
22% of every dollar earned between$52,850 and $84,200
24% of every dollar earned between$84,200 and $160,700
32% of every dollar earned between$160,700 and $204,100
35% of every dollar earned between$204,100 and $510,300
37% of every dollar earned above$510,300

Read more: How tax brackets determine your taxes.

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Life insurance can help your family settle up with Uncle Sam after you’re gone.

Standard deduction vs itemized deductions

You do not actually pay tax on your full earnings. The government allows you to deduct a certain amount of your income. The income you deduct is exempt from tax.

The main deduction is called the standard deduction and every taxpayer qualifies for it. Your standard deduction depends on your filing status and everyone with that filing status gets the same standard deduction (though seniors and people who are blind get more). The standard deduction updates each year to keep pace with inflation. (Before the 2017 tax reform, there were also personal exemptions, which every tax filer could take. Exemptions have been eliminated, starting in 2018.)

2019 standard deductions

Filing statusStandard deduction amount
Single$12,200
Married filing jointly$24,400
Married filing separately$12,200
Head of household$18,350
Qualified widow(er)$24,400

These standard deductions apply to your 2019 taxes, which you file in early 2020. There is an additional deduction of $1,300 for married filers if either person is over age 65 or blind. Single filers and heads of household get an additional $1,650 if they’re blind or over 65. You can claim double the additional deduction if you’re both blind and over 65.

2020 standard deductions

Filing statusStandard deduction amount
Single$12,400
Married filing jointly$24,800
Married filing separately$12,400
Head of household$18,650
Qualified widow(er)$24,400

These standard deductions apply to your 2020 taxes, which you don’t file until early 2021.

Itemized deductions

You can choose to itemize your deductions instead of taking the standard deduction if you spent more than your standard deduction during the year for certain types of expenses. Only about 10% of all Americans will be able to itemize. Possible itemized deductions include

  • Medical expense deduction for medical expenses that exceed 10% of your adjusted gross income
  • Up to $10,000 you have paid for state and local taxes, also called the SALT deduction
  • Mortgage interest deduction for interest and points on your home mortgage
  • Charitable contributions
  • Casualty and theft losses from a federally declared disaster. If you don’t itemize, you may still be able to increase your standard deduction by any net qualified disaster losses. See the instructions of Form 1040 Schedule A for more details.
  • Other expenses, including gambling losses, amortizable bond premiums, and a few others that aren’t very common. See the instructions of Form 1040 Schedule A for more information.

Read our guide to Schedule A for more on itemizing deductions.

Tax deductions vs tax credits

Deductions and credits are often confused because they both lower your tax bill by “adjusting” your income. The difference is how they do it and which part of the filing process they apply to.

How deductions work

A tax deduction effectively decreases your income for the year. If you have $55,000 in gross income (total income) and qualify for $15,000 in deductions, your taxable income is now $40,000 ($55,000 minus $15,000).

Deductions are often divided into above-the-line and below-the-line deductions. The “line” is your AGI (adjusted gross income). First, there is a set of above-the-line deductions that lower your gross income. You can find these on Schedule 1. Examples include the student loan interest deduction and the deduction for self-employment tax. Everyone can take these above-the-line deductions if they’re eligible. You do not need to itemize.

You arrive at your AGI after taking above-the-line deductions. Then you subtract the standard deduction. If you are itemizing, you subtract those instead, and they’re considered below-the-line deductions.

Even if you don’t itemize, you can still qualify for one below-the-line deduction in 2019 and 2020: the qualified business income (QBI) deduction. The QBI deduction is available to many owners of sole proprietorships, partnerships, and S corporations, as well as some trusts and estates.

The result after taking all deductions is your taxable income. This is the income the IRS uses to calculate how much tax you actually owed for the year. Deductions do not directly reduce how much tax you pay. They reduce the amount of income used to determine what you owe.

Learn more in our guide to deductions.

How tax credits work

The amount of annual income tax you owe is your tax liability. You may hear this referred to as your tax bill since it’s the amount you have to pay for the year. Tax credits lower your tax liability, so they directly lower the amount you have to pay in taxes.

There are two main types of credits: refundable and nonrefundable. Refundable credits can reduce your liability below $0, meaning that you can get a refund even if you don’t owe any tax for the year. For example, if your tax liability is $15,000 and you have $17,000 in refundable credits, you would get a $2,000 refund from the government.

Nonrefundable credits are limited to your tax liability and don’t bring your liability below $0. Even if the credits you qualify for are worth more than what you owe, your tax bill simply drops to $0 and you don’t get money back.

Tax credits you can claim in 2020, for your 2019 taxes, include the following:

The child tax credit (CTC) & credit for other dependents (ODC)

These fall under a single credit worth $2,000 per qualifying child (age 16 or younger) and $500 per other qualifying dependent (such as a parent). Eligibility depends largely on how many dependents you have and your income. The child tax credit is not refundable, but if your credit is more than your tax liability and your annual income was at least $2,500, then you can qualify for the additional child tax credit (ACTC), which is refundable up to $1,400. Learn more about how to claim child tax credit.

The child and dependent care credit

A nonrefundable credit for expenses incurred to pay someone to look after a dependent while you either work or look for work. The amount of your credit depends on your AGI, but it’s worth between 20% and 35% of your allowable expenses. The maximum credit is $3,000 if you have one dependent and up to $6,000 if you have two or more dependents.

The adoption credit

The adoption credit provides a tax credit for qualified adoption expenses that you pay to adopt a child. The maximum credit for 2019 is $14,080 per child, depending on your modified adjusted gross income. (Adopting a child with special needs also generally earns you the maximum.) The credit is nonrefundable, but any excess credit amount can be carried over and applied to a future tax year for up to five years. (Learn more about how to afford an adoption.)

The earned income tax credit (EITC)

Also called the earned income credit, this is a refundable break for low-income and moderate-income families. It’s worth up to $6,557 for 2019, but there are income limits. Learn more about EITC here.

The American opportunity tax credit (AOTC)

A partially refundable tax credit for students to cover education expenses for the first four years of college. The maximum annual credit is $2,500 per student. If it brings your liability below $0, you can get up to 40% of the remaining credit as a refund. Read more about the American opportunity tax credit.

The lifetime learning credit (LLC)

Another tax break for students, this nonrefundable credit is worth up to $2,000, based on your filing status and AGI. It’s primarily for tuition expenses and applies to undergraduate, graduate, and professional degrees as well as courses to acquire or improve job skills. There is no limit to how many years you can claim the LLC, as long as you’re a student. See if you qualify for the lifetime learning credit.

The saver’s credit

Officially known as the retirement savings contributions credit, this is a nonrefundable tax credit you can get if you contribute to an IRA or an Achieving a Better Life Experience (ABLE) account. It’s worth between 10% and 50% of your contributions, up to a maximum of $2,000. Eligibility varies by filing status and AGI.

The credit for excess Social Security and RRTA tax withheld

Certain government employees and railroad employees don’t have to pay Social Security tax out of their paychecks because they contribute to other types of pensions. If your employer withheld too much Social Security tax, this credit may allow you to recoup the excess you paid.

The premium tax credit

A refundable tax credit that lowers the cost of your monthly health insurance premiums if your household household income is between 100% and 400% of the federal poverty level. You can choose to claim the credit at the beginning of the year and then spread it out throughout the year, or you can wait to get the whole credit when you file your tax return. It’s called the advance premium tax credit if you take it in advance.

The health coverage tax credit (HCTC)

The HCTC applies to some workers who lose their jobs due to negative effects of global trade, workers who are eligible to receive benefits under the Trade Adjustment Assistance (TAA) Program, and some individuals who receive pension payments from the Pension Benefit Guaranty Corporation (PBGC). The credit covers 72.5% of your health insurance premiums, including for COBRA coverage.

How to actually file your return

In order to file your tax return, you need to complete Form 1040. It’s the basic federal income tax form and basically the only taxpayers who don’t use it are nonresident aliens.

The general 1040 instructions are simple: you add up all of the income you earned, you claim deductions and credits to adjust that income, and then you calculate how much tax you should have paid in order to see whether or not you paid enough. You will need to attach other forms or schedules to claim deductions and credits, as well as to provide proof of your financial situation. For example, you should attach all W-2s to your 1040.

We have created a detailed guide to filling out Form 1040, including line-by-line instructions and the additional forms you may need to attach.

There are three main ways to file your tax return:

  • E-file (the safest and easiest option)
  • Mail a paper return
  • Work with a professional

e-file, including free options

The easiest and safest way to complete your tax return is to file electronically, or e-file. There are a number of online products that guide you through filling out your 1040 and attaching the necessary documents. You can then submit your return electronically.

The IRS strongly recommends e-filing. It’s easier to process than paper returns, you get refunds faster, and it’s safer because forms can’t get lost in the mail. The IRS also offers Free File for people with income of less than $69,000. You can still use Free File if you have higher income, but you can’t use the Free File software, so you will get less guidance. You will also need to file your state return yourself, if your state has income tax. Some states do have their own online filing services for a small fee. (For help on your federal return, see the 1040 guide mentioned above.)

You may also qualify for free help preparing your tax return through the IRS’ Volunteer Income Tax Assistance (VITA) program. It is generally available to taxpayers who make $56,000 or less, have disabilities, or don’t speak English well. Seniors (age 60 and over) who need help should consider the Tax Counseling for the Elderly (TCE) program. It specializes in tax scenarios that involve pensions and retirement-related issues.

Learn more about the IRS’ free VITA/TCS services.

Other online tax-filing services may charge a fee for their services, especially if your tax situation is more complex. Common services are TurboTax, H&R Block, TaxAct, TaxSlayer, FreeTaxUSA, and Credit Karma. Of these, Credit Karma is the only one that’s free for all tax filers (but you have to create a free account and Credit Karma may use some of your information to help advertisers target you).

Some services, like TurboTax and H&R Block, also have software that you can buy and download to your own computer instead of filing online.

Completing a paper form

Mailing a paper form is discouraged by the IRS if you have the ability to e-file because it’s less secure and takes longer to process. You could have to wait months before you get a refund versus a few weeks if you e-file. The IRS has also found that 21% of paper returns have errors on them, compared to less than 1% of electronic returns. However, you can find all necessary tax forms on the IRS website and complete a paper return if you want to. Filing by paper is free.

Note that you must mail a paper return for back taxes (a return for a previous year) or an amended return. Some online services may be able to help you fill out old returns, but you will then need to print and mail them.

Work with a professional

A tax accountant or other certified tax preparer can help you file in person. This is most helpful if you have a complex tax situation or if your taxes have changed drastically from one year to the next. An online service can handle the majority of people’s taxes, but a professional can add a human touch if you want it.

You may be able to find tax preparers near you, with H&R Block and Jackson Hewitt (found in many Walmart locations) being two well-known companies with physical offices. Consider also talking with a specialist if you have special circumstances, such as an estate planning attorney if you need planning for estate taxes.

It has also become popular for online services to offer access to a professional over the phone or through an online chat. A few of the online services mentioned earlier offer this, but it will cost more.

Next steps: How to choose a tax preparer.

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Getting a refund or paying a bill

How long it takes to get your tax refund depends on when you file and the details of your specific return. According to the IRS, most people will get their refund within 21 days of the IRS receiving your return. However, it may take longer right when tax season starts and around the Tax Day deadline. That’s when most people file, so the IRS may process returns more slowly.

E-filed returns that opt for direct deposit in a checking or savings account are usually the fastest to process. Sending a paper return or getting a paper check takes longer. The table below lists some general guidelines for how long it may take to get your refund. These times may not be the same for everyone.

Estimated refund schedule for federal income taxes

Filing methodRefund methodWhen to expect your refund
e-fileDirect deposit1 to 3 weeks from filing date
e-filePaper check in mail3 weeks or more from filing date
Mailed paper returnDirect deposit1 month or more from IRS receiving your return
Mailed paper returnPaper check in mail2 months or more from IRS receiving your return

How to check the status of your refund

The IRS allows you to check the status of your refund on its website or by downloading the IRS2Go app on your mobile device. Your status is generally available 24 hours after e-filing. You will need to enter your SSN or ITIN, your filing status, and your exact refund amount.

The IRS advises that you should only call them about your refund status if it’s been at least 21 days since you e-filed, at least six weeks since you mailed your return, or if the online tool instructs you to contact the IRS.

Paying your bill

If you have to make a payment to the IRS, you can send it electronically through whichever online filing service you used. You may have to create an online IRS account. If you already have an IRS account (such as for making estimated tax payments), you can pay through there.

You can also mail a check (though this option is less safe) to the IRS. The correct mailing addresses for payments are in the instructions of Form 1040.

Possible tax penalties

The failure-to-file penalty applies when you don’t file your return by the deadline. It’s 5% of your unpaid taxes and it accrues each month, starting the day after the filing deadline, until it reaches the maximum of 25% of your unpaid taxes. This penalty only applies if you owe the IRS money. If you don’t owe any taxes, meaning you’re expecting a tax refund, there is no penalty for filing late. (You need to file within three years or you forfeit your refund.)

The failure-to-pay penalty applies if you don’t pay your full tax bill by the filing deadline. It’s worth 0.5% to 1% of your unpaid taxes and accrues each month. The maximum penalty is 25% of your unpaid taxes.

If you have to pay both of the above penalties, the maximum combined penalty that you’ll pay each month is 5% of the unpaid taxes.

Learn more about what happens if you don’t file your taxes.

Other penalties you may have to include on your tax return include:

  • A 10% penalty for improperly withdrawing money from a retirement account before age 59 1/2.
  • Failure to make the required minimum distributions (RMDs) from a retirement account once you hit age 70 1/2.

What about tax audits?

A tax audit happens when the IRS requests more details about your tax return to verify that everything you reported was correct. The word “audit” strikes fear into the hearts of many people, but they actually aren’t that bad for most.

What causes an audit?

First of all, audits are not very common. They usually occur when something on your return is out of the ordinary, like saying your income doubled from one year to the next or reporting no charitable contributions one year and then $100,000 of charitable contributions the next year. The IRS does randomly audit a small percentage of people, but these aren’t common enough to be afraid of.

The IRS will not audit you for small mathematical errors. If you write income of $10,050 instead of $10,005, the IRS typically just corrects that error without even mentioning it to you (unless it changes your refund/bill).

If you forget to attach a document to your return and the IRS needs it, you may get a letter asking you to send it in. This isn’t an audit and you don’t have to worry about penalties for a small mistake like forgetting to attach a W-2.

Another thing to keep in mind is that if you used a tax-filing service and there was an error on their end, the service will usually cover costs you incur from an audit. Some services will also represent you during an audit, though this may cost more. (You may also have to opt for audit coverage when you file your return, which generally costs money.)

Further reading: 5 ways to avoid an audit

How audits work

If the IRS does audit you, it will notify you via a letter in the mail. This letter will have any instructions or other information you need. In most cases, you just need to mail in some forms to confirm that your return was accurate. These may include documents like medical receipts and pay stubs. This is considered a mail audit.

You should keep all your financial documents for at least three years. According to the IRS, most audits occur on returns that are two years old. If there is a “substantial error” on your return, the IRS may go back more than six years. Major mistakes like this aren’t that common, but you may want to keep your documents for six years just to have all your bases covered.

Some audits require an in-person interview with an IRS employee so they can make a thorough review of your return. These are less-common for individuals (unless your return was wildly wrong) and more common for businesses. An office audit will require you to visit an IRS office and a field audit will happen in your home, your place of business, or your accountant’s office. You are allowed to have a tax accountant or lawyer to represent you for an audit.

If the IRS finds that your return was inaccurate, it will notify you of its findings and the next steps. You can appeal if you think the IRS made a mistake.

State income tax returns

Just like the federal government, 43 states collect income tax (as do the District of Columbia and Puerto Rico). That means most people need to pay federal and state income taxes. Some cities or metro areas also collect income tax, like St. Louis, Missouri, and the Portland, Oregon, metro area.

Most states have marginal tax brackets, but each state chooses its own rates, so they vary greatly. For example, Virginia has four income tax brackets ranging from 2% up to 5.75%. California has nine brackets ranging from 1% up to 12.3%, with an extra 1% tax on income over $1 million. Nine states also have a flat tax, with everyone paying the same rate on all their income.

States also have their own tax codes, with some mirroring the federal system more closely than others; in Ohio, the main income tax form is the IT 1040, but New Mexico’s primary income tax form is called PIT-1. Tax seasons for state income tax may also differ from the federal tax season.

If you e-file using an online tax-filing service, you can typically file a state return as well. This may cost extra, though (especially if you have to file returns for multiple states). Some states also have their own e-filing systems. Check with your individual city or state department of revenue to learn more about local income taxes. Just keep in mind that some states don’t finalize all their tax rates until right before tax season starts.

States with no income tax

Seven states do not have a state income tax:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

New Hampshire and Tennessee also don’t tax most regular income, but they do tax income you make from interest or dividends. Tennessee’s tax, called the Hall income tax, will expire in 2022.