Publication 17
Your Federal Income Tax

For Individuals

For use in preparing 2002 Returns

Part One - The Income Tax Return

The five chapters in this part provide basic information on the tax system. They take you through the first steps of filling out a tax return - such as deciding what your filing status is, how many exemptions you can take, and what form to file. They also discuss recordkeeping requirements, IRS e-file (electronic filing), certain penalties, and the two methods used to pay tax during the year: withholding and estimated tax.

1. Filing Information

Important Changes

Who must file.   Generally, the amount of income you can receive before you must file a return has been increased. See Table 1-1, Table 1-2, and Table 1-3 for the specific amounts.

Form 1040EZ interest threshold.   Previously, you could not file Form 1040EZ if you had more than $400 of taxable interest income. Beginning with your 2002 tax return, this threshold amount is increased to $1,500. This means you can file Form 1040EZ for 2002 if your taxable interest income is $1,500 or less and you meet all the other requirements listed under Form 1040EZ.

Mailing your return.   You may be mailing your return to a different address this year because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise, see your form instructions for where to file.

Free electronic filing.   You may be able to file your 2002 taxes online free thanks to a new electronic filing agreement. See New-free Internet filing options under IRS e-file, later.

Important Reminders

Alternative filing methods.   Rather than filing a return on paper, you may be able to file electronically using IRS e-file. Create your own personal identification number (PIN) and file a completely paperless tax return. For more information, see Does My Return Have To Be On Paper, later.

Change of address.   If you change your address, you should notify the IRS. See Change of Address, later, under What Happens After I File.

Write in your social security number.   You must write your social security number (SSN) in the spaces provided on your tax return. If you file a joint return, please write the SSNs in the same order as the names.

Direct Deposit of refund.   Instead of getting a paper check, you may be able to have your refund deposited directly into your account at a bank or other financial institution. See Direct Deposit under Refunds, later.

Alternative payment methods.   If you owe additional tax, you may be able to pay electronically. See How To Pay, later.

Installment agreement.   If you cannot pay the full amount due with your return, you may ask to make monthly installment payments. See Installment Agreement, later, under Amount You Owe.

Service in combat zone.   You are allowed extra time to take care of your tax matters if you are a member of the Armed Forces who served in a combat zone, or if you served in the combat zone in support of the Armed Forces. See Individuals Serving in Combat Zone, later, under When Do I Have To File.

Adoption taxpayer identification number.   If a child has been placed in your home for purposes of legal adoption and you will not be able to get a social security number for the child in time to file your return, you may be able to get an adoption taxpayer identification number (ATIN). For more information, see Social Security Number, later.

Taxpayer identification number for aliens.   If you or your dependent is a nonresident or resident alien who does not have and is not eligible to get a social security number, file Form W-7 with the IRS to apply for an Individual Taxpayer Identification Number (ITIN). For more information, see Social Security Number, later.

Third party designee.   You can allow the IRS to discuss your tax return with a friend, family member, or any other person you choose by checking the Yes box in the third party designee area of your return. See Third Party Designee.

Introduction

This chapter discusses:

• Whether you have to file a return,
• Which form to use,
• How to file electronically,
• When, how, and where to file your return,
• What happens if you pay too little or too much tax,
• What records you should keep and how long you should keep them, and
• How you can change a return you have already filed.

Do I Have To
File a Return?

You must file a federal income tax return if you are a citizen or resident of the United States or a resident of Puerto Rico and you meet the filing requirements for any of the following categories that apply to you.

1. Individuals in general. (There are special rules for surviving spouses, executors, administrators, legal representatives, U.S. citizens living outside the United States, residents of Puerto Rico, and individuals with income from U.S. possessions.)
2. Dependents.
3. Child under age 14.
4. Self-employed persons.
5. Aliens.

The filing requirements for each category are explained in this chapter.

The filing requirements apply even if you do not owe tax.

Even if you do not have to file a return, it may be to your advantage to do so. See Who Should File, later.

One return.   File only one federal income tax return for the year regardless of how many jobs you had, how many Forms W-2 you received, or how many states you lived in during the year.

Individuals - In General

If you are a U.S. citizen or resident, whether you must file a return depends on three factors:

1. Your gross income,
2. Your filing status, and
3. Your age.

To find out whether you must file, see Table 1-1, Table 1-2, and Table 1-3. Even if no table shows that you must file, you may need to file to get money back. (See Who Should File, later.)

Gross income.   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. It also includes income from sources outside the United States (even if you may exclude all or part of it). Common types of income are discussed in the chapters in Part Two of this publication.

Community property.   If you are married and your permanent home is in a community property state, half of any income described by state law as community income may be considered yours. This affects your federal taxes, including whether you must file if you do not file a joint return with your spouse. See Publication 555, Community Property, for more information.

Self-employed individuals.   If you are self-employed, your gross income includes the amount on line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business. See Self-Employed Persons, later, for more information about your filing requirements.

If you do not report all of your self-employment income, your social security benefits may be lower when you retire.

Filing status.   Your filing status depends on whether you are single or married and on your family situation. Your filing status is determined on the last day of your tax year, which is December 31 for most taxpayers. See chapter 2 for an explanation of each filing status.

Age.   If you are 65 or older at the end of the year, you generally can have a higher amount of gross income than other taxpayers before you must file. See Table 1-1. You are considered 65 on the day before your 65th birthday. For example, if your 65th birthday was on January 1, 2003, you are considered 65 for 2002.

Surviving Spouses,
Executors, Administrators,
and Legal Representatives

You must file a final return for a decedent (a person who died) if both of the following are true.

• You are the surviving spouse, executor, administrator, or legal representative.
• The decedent met the filing requirements at the date of death.

For more information on rules for filing a decedent's final return, see chapter 4.

U.S. Citizens Living
Outside the United States

If you are a U.S. citizen living outside the United States, you must file a return if you meet the filing requirements. For information on special tax rules that may apply to you, get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. It is available at most U.S. embassies and consulates. Also see How To Get Tax Help in the back of this publication.

Residents of Puerto Rico

Generally, if you are a U.S. citizen and a resident of Puerto Rico, you must file a U.S. income tax return if you meet the filing requirements. This is in addition to any legal requirement you may have to file an income tax return for Puerto Rico.

If you are a resident of Puerto Rico for the entire year, gross income does not include income from sources within Puerto Rico, except for amounts received as an employee of the United States or a U.S. agency. If you receive income from Puerto Rican sources that is not subject to U.S. tax, you must reduce your standard deduction. As a result, the amount of income you must have before you are required to file a U.S. income tax return is lower than the applicable amount in Table 1-1 or Table 1-2. See U.S. taxation and its discussion, Standard deduction, under The Commonwealth of Puerto Rico in Publication 570, Tax Guide for Individuals With Income From U.S. Possessions, for further information.

Individuals With Income
From U.S. Possessions

If you had income from Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the Virgin Islands, special rules may apply when determining whether you must file a U.S. federal income tax return. In addition, you may have to file a return with the individual island government. See Publication 570 for more information.

Dependents

If you are a dependent (one who meets the dependency tests in chapter 3), see Table 1-2 to find whether you must file a return. You also must file if your situation is described in Table 1-3.

Responsibility of parent.   Generally, a child is responsible for filing his or her own tax return and for paying any tax on the return. But if a dependent child who must file an income tax return cannot file it for any reason, such as age, a parent, guardian, or other legally responsible person must file it for the child. If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words By (signature), parent (or guardian) for minor child.

Child's earnings.   Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.

Table 1-1. 2002 Filing Requirements for Most Taxpayers

Table 1-2. 2002 Filing Requirements for Dependents          See chapter 3 to find out if someone can claim         you as a dependent.

If your parents (or someone else) can claim you as a dependent, and any of the situations below apply to you, you must file a return. (See Table 1-3 for other situations when you must file.)
In this table, earned income includes salaries, wages, tips, and professional fees. It also includes taxable scholarship and fellowship grants. (See Scholarship and Fellowship Grants in chapter 13.) Unearned income includes investment-type income such as interest, dividends, and capital gains. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Gross income is the total of your earned and unearned income.
Caution: If your gross income was $3,000 or more, you generally cannot be claimed as a dependent unless you were under age 19 or a full-time student under age 24. For details, see Gross Income Test in chapter 3.
Single dependents - Were you either age 65 or older or blind?
	No. You must file a return if any of the following apply. Your unearned income was more than $750. Your earned income was more than $4,700. Your gross income was more than the larger of: 1) $750, or 2) Your earned income (up to $4,450) plus $250.
	Yes. You must file a return if any of the following apply. Your earned income was more than $5,850 ($7,000 if 65 or older and blind). Your unearned income was more than $1,900 ($3,050 if 65 or older and blind). Your gross income was more than: 1) The larger of $750, or your earned income (up to $4,450) plus $250, plus 2) $1,150 ($2,300 if 65 or older and blind).
Married dependents - Were you either age 65 or older or blind?
	No. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your earned income was more than $3,925. Your unearned income was more than $750. Your gross income was more than the larger of: 1) $750, or 2) Your earned income (up to $3,675) plus $250.
	Yes. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your earned income was more than $4,825 ($5,725 if 65 or older and blind). Your unearned income was more than $1,650 ($2,550 if 65 or older and blind). Your gross income was more than: 1) The larger of $750 or your earned income (up to $3,675) plus $250, plus 2) $900 ($1,800 if 65 or older and blind).

Child Under Age 14

If a child's only income is interest and dividends (including Alaska Permanent Fund dividends) and certain other conditions are met, a parent can elect to include the child's income on the parent's return. If this election is made, the child does not have to file a return. See Parent's Election To Report Child's Interest and Dividends in chapter 32.

Self-Employed Persons

You are self-employed if you:

• Carry on a trade or business as a sole proprietor,
• Are an independent contractor,
• Are a member of a partnership, or
• Are in business for yourself in any other way.

Self-employment can include work in addition to your regular full-time business activities. It also includes certain part-time work that you do at home or in addition to your regular job.

You must file a return if your gross income is at least as much as the filing requirement amount for your filing status and age (shown in Table 1-1). Also, you must file Form 1040 and Schedule SE (Form 1040), Self-Employment Tax, if:

1. Your net earnings from self-employment (excluding church employee income) were $400 or more, or
2. You had church employee income of $108.28 or more. (See Table 1-3.)

Use Schedule SE (Form 1040) to figure your self-employment tax. Self-employment tax is comparable to the social security and Medicare tax withheld from an employee's wages. For more information about this tax, get Publication 533, Self-Employment Tax.

Foreign governments or international organizations.   If you are a U.S. citizen who works in the United States for an international organization, a foreign government, or a wholly owned instrumentality of a foreign government, and your employer is not required to withhold social security and Medicare taxes from your wages, you must include your earnings from services performed in the United States when figuring your net earnings from self-employment.

Ministers.   You must include income from services you performed as a minister when figuring your net earnings from self-employment, unless you have an exemption from self-employment tax. This also applies to Christian Science practitioners and members of a religious order who have not taken a vow of poverty. For more information, get Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

- Continue -