April 15 is a big day for millions of people in America. It is Tax Day, the deadline for people to file their taxes for the previous year. Taxes  play a very important role in our society. Besides being the main source of funding for our government, taxes also provide billions of dollars in aid every year to working class people and families. 

We see the effects of our taxes every day: in our roads, our social services, and in our paychecks. While many people have a negative opinion of taxes and the IRS, there are actually a lot of great things that come from filing taxes, including refunds! While filing taxes can seem very stressful and complicated, there are many resources available to help you file correctly and save money. Even if you do owe money, the IRS is committed to working with you through that process.  

What are taxes?

Put simply, taxes are sums of money that the government collects from people to pay for its operations. The money from taxes goes towards all different programs, from roads and bridges to the military to Social Security and Medicare. Every country collects taxes for its government, but each one does it differently. 

There are different types of taxes. One type you may see on any receipt from a store is a sales tax. This is a small percentage applied to many of the items we buy. Property taxes are a type of tax for people who own homes, buildings, or lands. Most of the government’s money comes from income taxes. Income taxes apply towards our wages, salaries, and other sources of income.

The IRS is a federal agency that collects taxes for the U.S. government. Last year, they collected nearly $5 trillion in taxes from 262.8 million tax returns. The IRS employs nearly 80,000 people, including 15,000 customer service representatives. In addition to the IRS, each state has its own Department of Revenue that collects taxes to fund the state’s government. 

Who needs to file taxes?

Most people who work have to file taxes. The IRS sets a minimum level of income each year, and people who make more than that have to pay taxes. For people filing as “single” and under age 65, it is $13,850. For married people filing together, it is $27,700. In addition, if you were self-employed you likely also have to file taxes. And Massachusetts requires anyone making over $8,000 to file state taxes. But even if you didn’t make this much money, you may still want to file. There are two main reasons for this. One is you may have had federal taxes being withheld from your paycheck and filing will allow you to recover some of this money. Second, you may be eligible for tax credits. 

The IRS offers tax credits which get subtracted from your income taxes. If you receive a credit that is higher than the taxes you owe, you may be able to receive a refund. One of the most popular credits is the Earned Income Tax Credit, which provides a credit for individuals who work and make under a certain amount. The Child Tax Credit provides up to $2,000 for people who take care of a child or other dependent who is under age 17 at the end of the year. If you paid for college tuition or other college expenses, you may also be eligible for a credit. These credits alone provided almost $100 billion in refunds sent out to millions of taxpayers last year.

In addition to federal credits, state credits and deductions are also particularly important. For example, Massachusetts allows you to deduct half of your rent payments (up to $4,000) from your income, and also allows you to deduct up to $750 in commuter expenses. The state also provides its own tax credits. For example, if you take care of a child under 13, a dependent over 65, or someone with a disability, you may be eligible for the Child and Family Tax Credit. This is a $310 credit for each person you take care of.

How Do You File?

Once you decide to file your taxes, you need to figure out what documents you need. The first thing you will need is your basic personal information, like your Social Security number, your address, and your bank account info. Your bank account information is particularly helpful because if you receive a refund, or if you owe money, you can have it directly deposited/withdrawn to or from your bank account. Otherwise, you will receive or have to pay with a check. The next set of documents are going to be your W-2s, 1099s, or other documents that show how much money you made. Every year, your employer should send you a W-2 or other document. If they don’t send it to you, just ask! And remember that income can come from many different sources, including unemployment payments, interest from bank accounts, social security, and retirement accounts. 

One way is to file with paper documents and send them in the mail. Many people opt to file online instead using software programs like Turbotax, TaxSlayer, and Tax Act. If you are looking for in person help, there are also tax preparation companies like H&R Block, Jackson Hewitt, and Liberty Tax. One downside to these services is they cost money. 

Fortunately, there are also free options available. One of the newest options is the IRS Direct File, a pilot program now available for residents in twelve states,  including Massachusetts. The  IRS also offers Free File software for those making less than $79,000 in 2023. One of the best options available is through the VITA program. VITA is an IRS funded Volunteer program that provides tax preparation for people making less than $64,000 in 2023, or speak limited English, or have a disability. Over 9,000 VITA sites exist all over the country, including many in our area. 

IRS and DOR Refunds 

Yes, the IRS can owe you money too. The IRS offers tax credits which get subtracted from the income tax you owe. If you receive a credit that is higher than the taxes you owe, you may be able to receive a refund. One of the most popular credits is the Earned Income Tax Credit, which provides a credit for individuals who work and make under a certain amount. The Child Tax Credit provides up to $2,000 for people who take care of a child or other dependent who is under age 17 at the end of the year. If you paid for college tuition or other college expenses, you may also be eligible for a credit. These credits alone provided almost $100 billion in refunds sent out to millions of taxpayers last year.

In addition to federal credits, state credits and deductions are also particularly important. For example, Massachusetts allows you to deduct half of your rent payments (up to $4,000) from your income, and also allows you to deduct up to $750 in commuter expenses. The state also provides its own earned income and child tax credits.

IRS Notice Letters and Help for Taxpayers

There are few things that raise your heart rate quite like receiving a letter from the IRS. However, many of the biggest issues stem from a few common mistakes. Many people’s returns are not accepted because they put in the wrong personal information, often by misspelling a name or mistyping their Social Security card. This is a quick fix, and relatively harmless. A scarier problem comes when you realize that you put the wrong numbers into your tax return. Forgetting that comma or decimal is easy to overlook, but can result in a major headache if the IRS says you owe much more than you thought. This is also a simple fix, but one that strikes fear into even the calmest among us. 

Many people are frustrated when they withhold money from their paychecks for taxes, only to find out that they still owe money. This can mean that not enough is being withheld. To increase the amount withheld, you should tell your employer to take more out of each paycheck so that you don’t have to pay when you file your taxes. Another common issue is that people don’t have taxes withheld on their unemployment because they don’t realize that these payments are taxable income. Make sure you have the DUA withhold taxes so that you don’t owe money when you file. 

If you owe money to the IRS, they will usually send you a bill. If you don’t respond, they will send another letter with an option to pay. But if you continue to avoid payment, the IRS will take steps to collect the debt. The IRS has many collection tools at their disposal. They can assign your account to a collection agency, file a lien on your property, take money from your bank account or wages, or even seize your car or house. It is important to know that these steps are their last resort, and the IRS will always offer you the option to pay, negotiate, or appeal.

Low Income Taxpayer Clinics (LITC) are another amazing resource available for those who owe money and need help. LITCs offer free advice for those who have a tax issue with the IRS. Their tax experts can help you submit the proper documents and represent you in tax court. Last year, LITCs helped their clients recover over $10 million in refunds, and lower their tax debts by over $40 million. A full list of LITC sites can be found by looking up IRS Publication 4134. https://www.irs.gov/pub/irs-pdf/p4134.pdf