A question for my family member.
In 2020, she got 5k income which was considered as earned one and below 12k threshold, so she didn’t file tax for that year.
Recently, one accountant told her that income is unearned, she should file tax return. Is there penalty to file now？
Online preparation and e-filing for 2019 and 2020and 2021 is permanently closed.
To file a return for a prior tax year
If you need to prepare a return for 2019, 2020 or 2021 you can purchase and download desktop software to do it, then print, sign, and mail the return(s)
https://turbotax.intuit.com/personal-taxes/past-years-products/
You may also want to explore purchasing the software from various retailers such as Amazon, Costco, Best Buy, Walmart, Sam’s, etc.
Remember to prepare your state return as well—if you live in a state that has a state income tax.
When you mail a tax return, you need to attach any documents showing tax withheld, such as your W-2’s or any 1099’s. Use a mailing service that will track it, such as UPS or certified mail so you will know the IRS/state received the return.
Federal and state returns must be in separate envelopes and they are mailed to different addresses. Read the mailing instructions that print with your tax return carefully so you mail them to the right addresses.
Note: The desktop software you need to prepare the prior year return must be installed/downloaded to a full PC or Mac. It cannot be used on a mobile device.
snowingbird,
As Critter says, you can file returns for 2020. But your question has another important part and that will depend upon the details of the family member's situation.
1) Was she a dependent on her parent's income?
2) What was the source of the unearned income? Interest and dividends? Taxable scholarship? ... ?
She works now. In 2020，she was in university, dependent of parents.
The income is taxable scholarship(EAP) from Canadian RESP distribution, her family also moved from Canada.
When prepare tax for 2020, someone told her parents EAP was treated as earned income, 5k below threshold, no need file return.
If the info is wrong, she needs correct it.
snowingbird,
Interestingly, a taxable scholarship is treated as earned income when it comes to the dependent's standard deduction but unearned income when it comes to the so-called Kiddie Tax. To determine whether that $5K was taxable, we must turn to the 2020 Form 8615 and the companion 2020 8615 Instructions . In that form, line 1 would have $5,000, line 2 $2,200 and line 3 $2,800. Line 4, her taxable income, is the larger of $0 and $4,650 ($5000-$350) plus the lesser of $12,050 and the scholarship income. This turns out to be $0 which is carried to line 5.
Bottom line: her taxable income being $0, there is no regular tax and Form 8615, line 5 being zero, there is no kiddie tax. So she won't owe anything for 2020. However, yes she does need to file a 2020 tax return with the IRS and likely a state tax return, though I would need to know which state in order to determine that.
Specifically, the 2020 Form 1040 instructions state a dependent must file a return if
... any of the following apply.
• Your unearned income was over $1,100. [In this case, yes]
• Your earned income was over $12,400.
• Your gross income was more than the larger of—
• $1,100, or
• Your earned income (up to $12,050) plus $350
Thanks for your reply, I see you put the income as unearned.
Our state filing requirement is higher than 5k, state tax is not needed.
Actually I put the $5K as earned for the dependent standard deduction. Other than that, I took your word that it was otherwise unearned, i.e. that it had been used to pay tuition and related qualified educational expenses that let the scholarship be otherwise tax free. (Had it been used otherwise, the result would have been the same but the entries on the 1040 and schedules would have been different.)
With the state, do be absolutely sure that the state doesn't have separate who-must-file rules for dependents that could require filing with just that $5K.
Thanks for your info.
First, we want to be sure the EAP is earned or unearned income？If it’s earned income and below 12k, no need file federal tax.
Someone said this money is to pay tuition, put it in 1098-T as grant/scholarship, if the amount is less than tuition, it’s non taxable.
Also, I’m confused for dual tax. RESP is not tax deferral, we report income and pay tax every year. EAP is growth part, already taxed. Why beneficiary need report again for tax？
snowbirding,
I do not profess to be conversant with Canadian taxation. But in the US scholarships that cover tuition are tax free. Any portion that doesn't is taxable income.
For dependents, as I said, scholarships that cover tuition are treated as earned income in some places, specifically for computing the dependents standard deduction, and unearned income in others, specifically for determining whether the dependent must file and for the kiddie tax. Scholarship monies not used to pay tuition are always earned income.
For the family member's 2020 tax return, the calculations I gave showed that it was immaterial whether the scholarship was taxable income or not. In the US she has to file and will owe no tax assuming that was her only income.
For later tax years, the situation may be different depending on her age and specific financial situation.