Filing your first tax return

The U.S. system collects tax from your pay throughout the year, then reconciles it after the year ends. Filing a return is that reconciliation: you either overpaid and get a refund, or underpaid and settle the difference.

Deadline

15 April, for the year that ended 31 December

Documents arrive

By 31 January

Cost

Free through VITA or IRS Free File for most

Keep records

Three years minimum, seven is safer

Before anything else, establish whether you file as a resident or a non-resident — it decides which form you use and most of what follows. See do I have to file a U.S. tax return.

The documents that arrive in January

• W-2 — from each employer, showing wages and tax withheld
• 1099-NEC — for freelance or contract work of $600 or more
• 1099-INT / 1099-DIV — bank interest and investment income
• 1095-A — if you had a Marketplace health plan; you cannot file accurately without it
• 1098-T — tuition paid, which may unlock an education credit

They must be sent to you by 31 January. If one does not arrive, it is usually because the payer has an old address. Chase it rather than filing without it: the same document went to the IRS, and a return that omits it will be corrected for you, slowly.

Understanding your pay slip

Your gross pay is not what arrives in the bank. Deducted from it:

• Federal income tax, based on the W-4 form you completed when you were hired
• Social Security and Medicare (FICA) — 7.65% combined, matched by your employer
• State and sometimes city income tax
• Your share of health insurance, and any retirement contribution

Getting the W-4 wrong is the single most common reason a new arrival owes money in April. If you started work mid-year, or have two jobs, or your spouse also works, the default withholding is often too low. The IRS withholding estimator takes ten minutes and prevents an unpleasant surprise — see checking how much tax is withheld from your pay.

Employee or contractor

If you are paid on a 1099 rather than a W-2, no tax is withheld at all, and you owe self-employment tax — both halves of Social Security and Medicare, 15.3% — on top of income tax. Contractors generally must pay estimated tax quarterly rather than annually.

Being labelled a contractor when you work like an employee is a widespread abuse. If your hours, methods and tools are controlled by the company, you may legally be an employee regardless of what the paperwork says — see your rights at work.

Credits are worth more than deductions

A deduction reduces the income you are taxed on; a credit reduces the tax itself, dollar for dollar, and some are refundable — meaning they can pay you money even when you owed no tax at all.

The ones most often missed by people filing for the first time are the Earned Income Tax Credit and the Child Tax Credit, which together are worth thousands to lower-income working families. Both have their own eligibility rules, including which identification numbers the adults and children hold. A VITA volunteer will check them for you at no cost, and this is the main reason to use one rather than filing alone.

Standard deduction or itemising

Most people take the standard deduction, a flat amount that reduces taxable income with no receipts required. Itemising only makes sense when your deductible expenses — mortgage interest, large medical costs, state taxes, charitable donations — exceed it. Most non-resident filers cannot take the standard deduction at all.

State tax

Most states levy their own income tax, filed separately. A handful do not. If you moved between states during the year, or worked in one state while living in another, you may have to file in both — usually as a part-year resident in each, with a credit in one for tax paid to the other. Do not assume the federal software has handled it.

After filing

Keep a copy of every return and all supporting documents for at least three years — seven is safer. Returns are asked for by mortgage lenders, immigration applications and student aid forms.

If you notice a mistake after filing, it is fixable: an amended return corrects it, and doing so voluntarily is treated very differently from waiting to be found.