Do We Have to Pay Taxes? Filing Rules, Penalties, and Refunds

Yes, you generally have to pay federal income taxes if your income crosses the threshold set for your filing status and age. The requirement comes from the Internal Revenue Code, and courts have repeatedly rejected the argument that paying is optional. Willfully evading taxes is a felony punishable by up to five years in prison and a $100,000 fine, and even failing to file a required return is a misdemeanor carrying up to a year in prison and a $25,000 fine.¹² The Supreme Court held in Cheek v. United States that willfully violating a known tax obligation is a crime.³

Whether you personally owe anything depends on how much you earned, what kind of income it was, and how you file.

Who Actually Has to File

Filing requirements track your gross income against the threshold for your filing status and age. For tax year 2025 (the return due in April 2026), a single filer under 65 must file at $15,750, and a married couple filing jointly with both spouses under 65 must file at $31,500. Head of household starts at $23,625. Married filing separately kicks in at just $5.⁴

Filers 65 or older get slightly higher thresholds: $17,550 single, $33,100 for a joint return with one spouse 65 or older, $34,700 when both spouses are 65 or older, and $25,625 for head of household.⁴

These numbers are the standard starting point. Two situations move the bar down substantially.

If Someone Claims You as a Dependent

A dependent under 65 has to file when unearned income (interest, dividends, capital gain distributions) tops $1,350, or when earned income tops $15,750. The requirement is also triggered when gross income is more than the larger of $1,350 or earned income (up to $15,300) plus $450.⁴ A student with a summer job or an investment account may need a return of their own even if a parent still claims them.

If You’re Self-Employed

Self-employment has its own floor, and it’s much lower. Net earnings of just $400 require a return and payment of self-employment tax. The rate is 15.3 percent — 12.4 percent for Social Security and 2.9 percent for Medicare — and half of what you pay is deductible when you calculate adjusted gross income.⁵

Because nobody is withholding on your behalf, the IRS expects estimated tax payments four times a year: April 15, June 15, September 15, and January 15 of the following year. Missing a quarterly date can trigger an underpayment penalty.⁶

What Counts as Taxable Income

The Internal Revenue Code defines gross income sweepingly: all income from any source, unless a specific law excludes it.⁷⁸⁹¹⁰¹¹ Long-term capital gains may be taxed at a lower rate than ordinary income, but they are still taxable.

A U.S. citizen or resident alien owes federal tax on worldwide income, including wages earned abroad, and must report that income even when a foreign country also taxes it.¹²

A handful of common receipts are specifically excluded:

Supplemental Security Income payments are not taxable. Regular Social Security retirement benefits, by contrast, can be partially taxable depending on total income.¹³
Qualified scholarships used by degree-seeking students for tuition, required fees, books, and supplies are tax-free. Money used for room and board is not.¹⁴
Life insurance death benefits paid to a beneficiary are generally excluded from income, though interest accruing on the payout is taxable.¹⁵
Gifts and inheritances are not taxable to the person receiving them.¹⁶

What Happens If You Don’t File or Pay

The IRS charges two separate civil penalties, and they can run at the same time.

The failure-to-file penalty is 5 percent of the unpaid tax for each month or partial month a return is late, up to 25 percent total.¹⁷ That rate is ten times the failure-to-pay penalty, which is why filing on time matters even when you can’t cover the balance.

The failure-to-pay penalty is 0.5 percent of the unpaid tax per month, also capped at 25 percent. It drops to 0.25 percent per month once you have an approved IRS payment plan in place. It rises to 1 percent per month if you ignore an IRS notice of intent to levy.¹⁸ When both penalties hit the same month, the failure-to-file penalty is reduced by the failure-to-pay amount so the combined charge is 5 percent per month rather than 5.5.

On top of the penalties, the IRS charges interest on unpaid tax. The rate is 7 percent per year, compounded daily, for the first quarter of 2026.¹⁹

Deliberate evasion is a different level of exposure. Attempting to evade tax is a felony carrying up to five years in prison and a $100,000 fine.¹ Willfully failing to file, supply information, or pay is a misdemeanor with up to a year in prison and a $25,000 fine.²

If You Can’t Pay the Full Amount

A shortage of cash on April 15 is not an excuse to skip filing. The deadline for 2025 returns is April 15, 2026, and payment is due the same day.²⁰

You can file Form 4868 by the deadline to get an automatic six-month extension, moving your filing date to October 15, 2026. No explanation is required. An extension only extends the time to file, not the time to pay: interest and the failure-to-pay penalty still run from April 15 on any unpaid balance.¹⁹

If you can’t cover the bill, the IRS offers two structured options:

A short-term payment plan gives you up to 180 days with no setup fee. Interest and the failure-to-pay penalty continue to accrue.
A long-term installment agreement lets you pay monthly for a longer period. Choosing automatic bank withdrawals (a direct debit installment agreement) reduces the setup fee and cuts the monthly failure-to-pay penalty rate in half.²¹

You can apply online through an IRS account, by phone, or by mailing Form 9465. Setting up a plan before the IRS starts collection activity keeps penalties lower and avoids more aggressive enforcement.

When Filing Pays You Back

If your income is below the filing threshold, you may still want to file — because the IRS may owe you money. That happens when:

Your employer withheld federal income tax during the year. The only way to get that back is to file a return.
You made estimated tax payments.
You qualify for a refundable credit like the Earned Income Tax Credit, Child Tax Credit, or American Opportunity Tax Credit.²²

Refundable credits are worth checking for even when you owe nothing. A refundable credit can bring your tax bill below zero and pay the remainder to you; a nonrefundable credit stops at zero.²³

1
Office of the Law Revision Counsel. 26 U.S. Code 7201 – Attempt to Evade or Defeat Tax
2
Office of the Law Revision Counsel. 26 U.S.C. 7203 – Failure to File Return, Supply Information, or Pay Tax
3
Cornell Law School. John L. Cheek, Petitioner, v. United States
4
Internal Revenue Service. Check if You Need to File a Tax Return
5
Internal Revenue Service. Topic No. 554, Self-Employment Tax
6
Internal Revenue Service. Estimated Tax
7
Office of the Law Revision Counsel. 26 U.S.C. 61 – Gross Income Defined
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Internal Revenue Service. Earned Income, Self-Employment Income and Business Expenses
9
IRS. Unearned Income
10
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
11
Internal Revenue Service. Topic No. 419, Gambling Income and Losses
12
Internal Revenue Service. Figuring the Foreign Earned Income Exclusion
13
Internal Revenue Service. Social Security Income
14
Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
15
Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
16
Internal Revenue Service. What’s New — Estate and Gift Tax
17
Internal Revenue Service. Failure to File Penalty
18
Internal Revenue Service. Failure to Pay Penalty
19
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
20
Internal Revenue Service. When to File
21
Internal Revenue Service. Payment Plans; Installment Agreements
22
Internal Revenue Service. Who Needs to File a Tax Return
23
Internal Revenue Service. Refundable Tax Credits