The logic behind tax filing
Tax filing determines whether you’ve paid the right amount of federal income tax throughout the year. During the year, money gets withheld from paychecks or paid through estimated taxes. At filing time, you calculate what you actually owed based on your total income. The difference results in either a refund (you overpaid) or a balance due (you underpaid).
This reconciliation process exists because the tax system can’t know your final situation until the year ends. Your employer withholds taxes based on estimates, your W-4 elections and projected annual income. But actual income might differ, deductions might apply, and credits might reduce your liability. Filing sorts all of this out.
For most W-2 employees with straightforward situations, the process takes one to two hours and confirms that withholding was approximately correct. The complexity scales with the complexity of your financial life: multiple income sources, self-employment, investments, rental properties, and unusual deductions all add time and potential complications.
Who needs to file
The filing requirement depends primarily on gross income, filing status, and age. For tax year 2025, single filers under 65 generally need to file if gross income reached $15,750 or more. This threshold equals the standard deduction because below that amount, there’s no taxable income.
Different thresholds apply for other filing statuses: $31,500 for married filing jointly (both under 65), $23,625 for head of household. These numbers increase slightly for filers 65 and older due to the additional standard deduction for seniors.
Beyond income thresholds, certain situations trigger filing requirements regardless of income: self-employment income of $400 or more, owing special taxes like the alternative minimum tax, receiving advance premium tax credits for health insurance, or owing penalties on retirement account distributions.
Filing when not required can still make sense. If taxes were withheld from any income, the only way to get that money back is filing a return. Refundable tax credits like the Earned Income Tax Credit can also result in refunds even with zero tax liability, but claiming them requires filing.
The documents involved
W-2 forms come from employers by January 31. Each W-2 shows wages earned and taxes withheld, federal income tax, Social Security tax, and Medicare tax. Multiple jobs mean multiple W-2s, and every one needs to be reported.
The key boxes on a W-2: Box 1 shows taxable wages, Box 2 shows federal income tax withheld. These two numbers drive the basic return calculation. Other boxes cover state taxes, Social Security wages, retirement contributions, and health insurance premiums.
1099 forms report non-employment income. 1099-INT covers bank interest, 1099-DIV covers investment dividends, 1099-NEC covers freelance or contract work, 1099-G covers unemployment benefits and state tax refunds. Not everyone receives 1099s; they’re triggered by specific income types and minimum thresholds.
Unlike W-2 income, many 1099 payments don’t have taxes withheld. This means the full amount is taxable, and if no estimated payments were made, a balance will be due at filing.
Other relevant documents include student loan interest statements (Form 1098-E), mortgage interest statements (Form 1098), tuition statements (Form 1098-T), and health insurance marketplace statements (Form 1095-A). These support specific deductions and credits but don’t apply to everyone.
The filing process
Step 1: Determine filing status. Filing status affects tax brackets, standard deduction amounts, and eligibility for certain credits. The five statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse. Most first-time filers are Single. Head of Household requires being unmarried and paying more than half the cost of maintaining a home for a qualifying dependent.
Step 2: Report income. All taxable income gets reported, with different types landing on different lines. W-2 wages go on Line 1. Interest income goes on Schedule B (if over $1,500) and Line 2b. Dividends go on Line 3b. Self-employment income requires Schedule C for the business and Schedule SE for self-employment tax.
The total of all income sources becomes “total income.” Certain adjustments reduce this to “adjusted gross income” (AGI): retirement contributions, student loan interest deductions, health savings account contributions. AGI matters because many credits and deductions use it as a threshold.
Step 3: Choose standard or itemized deduction. The standard deduction for 2025 is $15,750 for single filers and $31,500 for married filing jointly. Itemized deductions include state and local taxes (capped at $10,000), mortgage interest, charitable contributions, and medical expenses exceeding 7.5% of AGI.
For most people, especially renters without significant charitable giving, the standard deduction exceeds itemized deductions. In that case, itemizing means extra work for no benefit. Tax software calculates both automatically and shows which is larger.
Subtracting the deduction from AGI produces “taxable income,” the number that actually gets taxed.
Step 4: Calculate tax liability. Tax liability comes from applying the tax brackets to taxable income. The 2025 brackets for single filers: 10% on income up to $11,925, 12% on income from $11,926 to $48,475, 22% on income from $48,476 to $103,350, and higher rates above that.
These brackets are marginal, meaning only income within each bracket gets taxed at that rate. Someone with $50,000 in taxable income doesn’t pay 22% on everything, they pay 10% on the first $11,925, 12% on the next $36,550, and 22% only on the remaining $1,525.
Step 5: Apply credits. Tax credits reduce tax liability directly, dollar for dollar. Nonrefundable credits can reduce liability to zero but not below. Refundable credits can result in money back even with zero liability.
Common credits include the Earned Income Tax Credit (for lower-income workers), the Child Tax Credit, the American Opportunity Credit (for education), and the Saver’s Credit (for retirement contributions by lower-income workers). Each has specific eligibility requirements and income limits.
Step 6: Compare to withholding. The final step compares calculated tax liability to taxes already paid through withholding. If withholding exceeded liability, the difference is a refund. If liability exceeded withholding, the difference is owed.
Most W-2 employees with properly completed W-4s end up close to break-even or with modest refunds. Large refunds indicate over-withholding, essentially an interest-free loan to the government. Large amounts owed indicate under-withholding, which can trigger penalties if the shortfall is significant.
Filing options
IRS Free File provides free guided tax software for taxpayers with adjusted gross income of $89,000 or less in 2025. Eight partner companies participate, each with their own interfaces and secondary eligibility rules. The program opens in January and remains available through the October extension deadline. Access must go through IRS.gov to reach the free versions, going directly to company websites often leads to paid products.
Free File Fillable Forms offer a do-it-yourself option regardless of income. These are electronic versions of paper tax forms without the guidance of commercial software. They work for people comfortable interpreting tax forms directly but provide no help or error-checking beyond basic math.
VITA (Volunteer Income Tax Assistance) provides free in-person tax preparation for households with incomes of $67,000 or less, people with disabilities, and taxpayers with limited English proficiency. VITA sites operate in libraries, community centers, and other public locations during filing season.
Commercial tax software like TurboTax, H&R Block, and TaxAct guide users through returns with interviews and explanations. Pricing varies by complexity, with simple returns sometimes free but additional schedules, state returns, and features adding cost. For straightforward W-2 situations, free options typically handle everything needed.
Professional tax preparers make sense for complicated situations: significant self-employment income, rental properties, complex investments, or multi-state filing. They cost more but provide expertise and often audit support. For first-time filers with simple W-2 income, professional preparation is usually unnecessary.
Key deadlines
January 31: Employers must send W-2s and certain 1099s by this date. If forms haven’t arrived by mid-February, contact the issuer.
April 15: The standard filing deadline (or the next business day if April 15 falls on a weekend or holiday). Returns and any balance due must be submitted by this date to avoid penalties.
October 15: The extended filing deadline for those who request an extension. Extensions grant additional time to file but not additional time to pay. Balances owed still accrue interest and penalties from April 15.
Extensions require submitting Form 4868 by April 15. This provides six additional months to file the actual return. If money is owed, an estimated payment should accompany the extension request to minimize penalties.
What happens after filing
E-filed returns receive acknowledgment within 24-48 hours. The IRS then processes the return, checking math and matching reported income against information returns (W-2s and 1099s) received from payers.
Refunds from e-filed returns with direct deposit typically arrive within 21 days. Paper returns and paper check refunds take longer. The “Where’s My Refund” tool on IRS.gov provides status updates.
Balances owed can be paid immediately via IRS Direct Pay, by mailing a check, or through payment plans. The IRS offers short-term payment plans (120 days or less) with minimal fees and long-term installment agreements for larger amounts. Interest and penalties accrue on unpaid balances until paid in full.
IRS contact happens through official mail, never through phone calls or emails demanding immediate payment. Legitimate IRS correspondence comes on official letterhead with clear identification numbers and response instructions.
Common first-time situations
Over-withholding and refunds: New employees often have more withheld than necessary, resulting in refunds. This isn’t free money, it’s returning your own money that was withheld throughout the year. Adjusting W-4 allowances can reduce withholding and increase take-home pay if large refunds occur consistently.
Multiple jobs in one year: Each employer withholds as if their wages were the only income. With multiple jobs, each might withhold at lower brackets than the combined income actually falls into. This can result in owing money at filing time.
Side income without withholding: Freelance work paid via 1099-NEC has no withholding. The full amount is taxable, and if no estimated payments were made, the full tax comes due at filing. This often surprises people new to self-employment.
Student status changes: Students claimed as dependents on parents’ returns have different filing requirements and don’t get their own standard deduction in the usual way. Transitioning from dependent to independent filing status changes the calculation.
Keeping records
The IRS can audit returns for three years from filing (or longer in cases of fraud or significant underreporting). Keeping supporting documents, W-2s, 1099s, receipts for deductions, for at least three years provides protection if questions arise.
A copy of each year’s completed return helps with future filings. Prior year AGI is needed to verify identity when e-filing, and year-over-year comparisons can catch errors or identify changes worth understanding.
Digital storage works fine for most documents. Scanning tax forms and organizing them by year creates a searchable archive that takes no physical space. The IRS accepts digital records as valid documentation.