Tax Law FAQs

Yes. You may face civil penalties or even criminal charges if you fail to file a return on time. You will continue to accrue interest on the overdue taxes and may face collection efforts from the IRS, but this situation is still better than the alternative.

Taxpayers rarely get extensions to pay taxes without interest and penalties. A taxpayer may be able to avoid penalties in some cases if they can show the IRS that they are facing a severe hardship. This involves filing Form 1127 to ask for a six-month extension. Sometimes the IRS will grant an extension only in return for posting a bond, which usually is not feasible for a taxpayer who is struggling to pay their taxes.

The IRS usually will not pursue a taxpayer who failed to file a return if at least six years have passed since the return was due. It does not have the authority to pursue criminal charges after that time. It does have the authority to impose civil penalties at any time in the future, but this does not usually happen.

Possibly. The IRS generally will refrain from bringing criminal charges against a taxpayer who willingly files an overdue tax return before the IRS informs them that they are under a criminal investigation. You probably do not need to worry about filing a return that has been overdue for more than six years.

This is possible but currently unlikely. The idea behind a tax amnesty is that people who failed to file their returns can get caught up on their tax obligations without facing criminal charges or civil penalties. The IRS has been reluctant to offer an amnesty because it fears that taxpayers will rely on sporadic amnesties and fail to file returns regularly. Some states have offered amnesties with encouraging results, though.

You should keep your tax records for six years, or at least three years. The normal time limit for an audit is three years, but the IRS can conduct an audit up to six years after a return if the taxpayer may have significantly underreported their income.

You should wait about eight weeks before taking action if the IRS does not send you a tax refund. Then, you can call the IRS or check the status of your refund at the IRS website. You may be entitled to interest on the refund if you filed your return by April 15 but do not receive a refund by May 31. Sometimes a refund will be intercepted to cover debts that a taxpayer owes for taxes, child support, overpayments of government benefits, or student or other government loans that are in default. You may or may not be notified if the refund has been intercepted, although technically this is required.

You will not need to pay interest if the IRS sent you a refund by mistake, as long as the IRS was at fault for the mistake and you promptly repay the refund. If the refund resulted from your mistake, and you cannot promptly repay it, you likely will need to pay interest.

The IRS can share the contents of its files with federal and state government agencies. Otherwise, the files are generally considered private. It is not unknown for IRS files to be hacked or for IRS employees to improperly access income tax records, though. Taxpayers do not have much recourse in these situations, and violators are usually not charged.

Possibly. You can submit Form 211 to the IRS to report someone who cheated on their taxes. You will receive a reward if the IRS successfully collects the taxes that are due. If you report someone who receives a gross income of over $200,000, or if the taxpayer underpaid by over $2 million, you will be entitled to a reward of 15 to 30 percent of the amount that the IRS collects. The amount of the award in any other situation is discretionary and will not extend beyond 15 percent of the amount that the IRS collects. You do not have a right to challenge the amount of the award.

Almost all married couples choose to file their taxes jointly. To qualify to file jointly, you do not necessarily need to live with your spouse. You can file jointly while living apart, as long as you are not subject to a final decree of divorce or separate maintenance. You do not need to have been married before the start of the year. Filing jointly tends to help couples in which one spouse earns much more income than the other. It places the higher-earning spouse in a lower income tax bracket than the bracket in which they would be placed otherwise. You can use tax preparation software to determine whether filing jointly or separately saves money. One situation in which you may want to consider filing separately is when you know that your spouse is not complying with the tax laws. You will not be liable for penalties that they incur if you file separately, but you may be liable if you file jointly unless you can show that you had no reason to know about your spouse’s misconduct when you signed the joint return.

You should itemize your deductions only if it will provide you with a greater benefit than taking the standard deduction. Most taxpayers will choose to take the standard deduction because it has become very generous under the Tax Cuts and Jobs Act, which went into effect in 2018. Some taxpayers who may come out ahead by itemizing their deductions include people who made substantial donations to charity, incurred large uninsured medical costs, or paid large amounts of interest and taxes on their home. Taxpayers may try to cluster several types of expenses that qualify for itemized deductions so that they can claim all of them in the same year. This might mean that they itemize their deductions in that year, while taking the standard deduction in other years.

A child needs to file a tax return if their earned income from a job exceeds the standard deduction, or if they receive investment income that exceeds a certain threshold. If they receive both earned and unearned income, more complex rules apply. If a child qualifies for certain types of tax credits, they may want to file a return even if it is not required. This is because they can claim a refund from the credit despite owing no taxes. A child also should file a tax return if income tax was withheld from their income. Even if they are a dependent, a child is responsible for keeping up with their own tax obligations. If they do not, their parents may be required to pay their taxes. A parent or guardian also must file a return on a child’s behalf if the child is unable to file a tax return.

If you have been classified as an independent contractor rather than an employee, you should ask your employer for its reasoning and try to get the decision reversed. If your employer is not cooperative, you can file Form SS-8 with the IRS to get a determination of your employment status for tax purposes. You can also file Form 8919 with the IRS to report uncollected Social Security and Medicare taxes on your wages. This will give you a credit for your Social Security record, assuming that you meet certain conditions for filing the form. If you were terminated by your employer, you can seek unemployment insurance from your state unemployment agency. It will determine whether you should have been classified as an employee and award benefits as appropriate. If you were hurt in an accident on the job, you can file a claim with your state workers’ compensation program. This provides coverage to employees who were denied workers’ compensation benefits because they were misclassified as independent contractors.

Yes. You will be responsible for paying income taxes and Social Security and Medicare taxes for any income received as an independent contractor. This is true even if you are a full-time employee who is performing some contract work on the side. You will need to pay self-employment taxes four times per year as estimated taxes. If your wages as an employee reach the Social Security annual tax ceiling, however, you will not need to pay additional Social Security taxes on your self-employment income. Otherwise, you will need to pay Social Security taxes on your self-employment income until the total of your wages and self-employment income reaches the Social Security tax ceiling. Income taxes and Medicare taxes must be paid on self-employment income in full, regardless of how much you earn as an employee.

Your domicile for tax purposes is the state that serves as your primary residence. This does not necessarily mean that you are currently living in that state. You still may have your domicile in a state where you do not live if you plan to return to that state and keep your home there indefinitely. A taxpayer cannot have more than one domicile at the same time, even if they maintain simultaneous residences in multiple states. If you want to make sure that a certain state is viewed as your domicile, you can take steps such as getting your driver’s license and registering your vehicle in that state, registering to vote in that state, opening bank accounts in that state, or participating in local organizations. You also can take steps to terminate your relationship with another state by selling your home there, refraining from spending much time there, and moving any work activities out of that state.

No. There is no legal basis for the arguments by scam artists that tax laws are invalid or unconstitutional. You can face criminal penalties for refusing to pay taxes on this basis.

Yes. If you trade in Bitcoins and earn a profit, this will be considered part of your gross income and will be subject to income tax.

Generally. Awards or prizes that you received are fully taxable, except for prize money related to competing in the Olympics or Paralympics. The fact that you did not actively seek out the award does not matter. If you give away money received from a merit award to a 501(c)(3) charitable organization, however, you may not need to pay income tax on it. If the money passes into your control at any time, you will need to report the award as income and then claim a deduction for the charitable contribution. In some cases, recipients of awards may be able to exclude the award money as income entirely if they instruct the entity giving the award to transfer the money directly to a charitable organization before the award is presented.

Puerto Rico offers special tax incentives to qualifying individuals and businesses that move to the territory from the mainland. These include zero tax on capital gains and passive income acquired as a Puerto Rico resident, as well as a 4 percent corporate tax rate for export service businesses. Strict eligibility requirements apply, such as bona fide residence in Puerto Rico for qualifying individuals and no nexus with Puerto Rico activities for businesses. Investors, traders, and certain entrepreneurs find these incentives especially useful.