Income limitation and filing

Comparison of standard deduction and itemized limitation

The standard deduction is a fixed amount that reduces your adjusted gross income (AGI) to arrive at taxable income. A taxpayer who is 65 or older or blind adds an additional standard deduction for each condition (for 2025, $2,000 if unmarried and not a surviving spouse, otherwise $1,600); it is separate from, and claimed in addition to, the $6,000 enhanced deduction for seniors. Itemized deductions allow you to deduct specific eligible expenses, which also reduce your AGI to arrive at taxable income. The most common itemized deductions are: medical expenses (subject to income limits), state and local income taxes, mortgage interest, and charitable contributions. See Form 1040 Schedule A.

The return computes the tax in this order:

1. Total income (excluded income is never part of it), less adjustments to income, equals adjusted gross income (AGI).
2. AGI, less the larger of the standard deduction or itemized deductions, the qualified business income deduction and the 2025 Schedule 1-A deductions (qualified tips, qualified overtime, car loan interest and the enhanced deduction for seniors), equals taxable income.
3. The tax on taxable income comes from the tax table or rate schedule.
4. The tax, less credits and prepayments (withholding, estimated payments and refundable credits), equals the balance due or refund.

Most taxpayers will choose the larger of either the standard deduction or itemized deduction. When spouses file married filing separately, if one spouse itemizes deductions, the other spouse’s standard deduction is zero ($0) and that spouse must also itemize to claim any deductions.

Required filing of a tax return

Taxpayers are required to file a tax return if any of the following exist:

• Your gross income is at least the filing threshold for your filing status and age (for 2025, $15,750 single under 65, $31,500 married filing jointly both under 65, $23,625 head of household under 65, and only $5 for married filing separately).
• Your net earnings from self-employment are at least $400 (net earnings are 92.35% of net profit, so it takes about $434 of net profit).
• You received advance payments of the Premium Tax Credit (Form 1095-A).
• You owe an excise tax on retirement plan assets.
• You owe Social Security and Medicare tax on tips that you did not report to your employer.
• Taxpayer can be claimed as a dependent by another taxpayer and has unearned income over $1,350, earned income over $15,750, or gross income over the larger of $1,350 or earned income (up to $15,300) plus $450 (2025; Eligibility, filing rules, and kiddie tax covers the test).
• Taxpayer owes 0.9% additional Medicare tax or 3.8% net investment tax.

A taxpayer who isn’t required to file should still file to get money back, such as a refund of income tax withheld or a refundable credit like the earned income credit; filing for that reason is voluntary, not a requirement.

Gross income for the filing test includes income from sources outside the United States, even if it can be excluded as foreign earned income or a foreign housing amount. It counts only income that isn’t exempt from tax, so tax-exempt interest, such as municipal bond interest, doesn’t count toward the threshold. Any U.S. citizen and resident aliens are taxed on their worldwide income. Generally, nonresident aliens are taxed only on U.S. source income. An exception to this rule is if a nonresident chooses to be a U.S. resident, e.g., in order to file a joint return with the spouse who is a citizen or resident alien.

Generally, any U.S. citizen, resident, or U.S. entity (corporation, partnership, LLC, trust, or estate) that has a financial interest in, signatory authority over, or other authority over a financial account in a foreign country with an aggregate value in excess of $10,000 at any time during the year must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), due April 15 with an automatic extension to October 15. Failure to file an FBAR is subject to both civil and criminal penalties.

Individuals living in the U.S. must use IRS Form 8938 to report specified foreign financial assets with an aggregate value greater than $50,000 at the last day of the year or more than $75,000 at any time during the tax year (the thresholds double for married individuals filing jointly). Taxpayers living abroad have higher thresholds; International information reporting covers them, compares the FBAR with Form 8938, and covers Forms 3520, 5471 and 8865.