Important Reminders

Listed below are important reminders and other items that may help you file your 2002 tax return. Many of these items are explained in more detail later in this publication.

Write in your social security number.   To protect your privacy, social security numbers (SSNs) are not printed on the peel-off label that comes in the mail with your tax instruction booklet. This means you must enter your SSN `in the space provided on your tax form. If you filed a joint return for 2001 and are filing a joint return for 2002 with the same spouse, enter your names and SSNs in the same order as on your 2001 return. See chapter 1.

Taxpayer identification numbers.   You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. This applies even if the person was born in 2002. Generally, this number is the person's social security number (SSN). See chapter 1.

Child tax credit.   You may be able to claim a tax credit for each of your qualifying children under age 17 at the end of the year. This credit can be as much as $600 for each qualifying child. See chapter 35.

Tax relief for victims of terrorist attacks.   Under the Victims of Terrorism Tax Relief Act of 2001, the federal income tax liability of those killed in the following attacks is forgiven for certain tax years.

• The April 19, 1995, terrorist attack on the Alfred P. Murrah Federal Building (Oklahoma City).
• The September 11, 2001 terrorist attacks.
• The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 2, 2002.

The Act also exempts from federal income tax certain amounts received by survivors.

For more information, see Publication 3920, Tax Relief for Victims of Terrorist Attacks.

Parent of a kidnapped child.   The parent of a child who is presumed by law enforcement authorities to have been kidnapped by someone who is not a family member may be able to take the child into account in determining his or her eligibility for the following.

• Head of household or qualifying widow(er) with dependent child filing status.
• Exemption for dependents.
• Child tax credit.
• Earned income credit.

See Publication 501, Exemptions, Standard Deduction, and Filing Information and Publication 596, Earned Income Credit (EIC).

Payments to Holocaust victims.   Restitution payments received after 1999 (and certain interest earned on the payments) are not taxable and do not affect the taxability of certain benefits, such as social security benefits. For more details, see chapter 13.

Advance earned income credit.   If a qualifying child lives with you and you expect to qualify for the earned income credit in 2003, you may be able to get part of the credit paid to you in advance throughout the year (by your employer) instead of waiting until you file your tax return. See chapter 37.

Sale of your home.   Generally, you will only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). See chapter 16.

Individual retirement arrangements (IRAs).   The following paragraphs highlight important reminders that relate to IRAs. See chapter 18 for details.

Individual retirement arrangement (IRA) for spouse. A married couple filing a joint return can contribute up to the maximum amount each to their IRAs, even if one spouse had little or no income.

Spouse covered by plan. Even if your spouse is covered by an employer-sponsored retirement plan, you may be able to deduct contributions to your traditional IRA if you are not covered by an employer plan.

Roth IRA. You may be able to establish a Roth IRA. In this type of IRA, contributions are not deductible but earnings grow tax free and qualified withdrawals are not taxable. You may also be able to convert a traditional IRA to a Roth IRA, but you must include all or part of the taxable converted amount in income.

Foreign source income.   If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties).

If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Joint return responsibility.   Generally, both spouses are responsible for the tax and any interest or penalties on a joint tax return. In some cases, one spouse may be relieved of that responsibility for items of the other spouse that were incorrectly reported on the joint return. For details, see Joint responsibility in chapter 2.

Include your phone number on your return.   To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Please enter your daytime telephone number on your tax form next to your signature.

Third party designee.   You can check the Yes box in the Third Party Designee area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See your income tax package for details.

Payment of taxes.   Make your check or money order payable to United States Treasury. You can pay your taxes by credit card or, if you file electronically, by electronic funds withdrawal. See chapter 1.

Faster ways to file your return.   The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. You can use IRS e-file (electronic filing). For details, see chapter 1.

Mailing your return.   If you are filing a paper return, you may be mailing your return to a different address 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 tax form instructions.

Private delivery services.   You may be able to use a designated private delivery service to mail your tax returns and payments. See chapter 1 for more information.

Refund on a late filed return.   If you were due a refund but you did not file a return, you generally must file within 3 years from the date the return was originally due to get that refund.

Privacy Act and paperwork reduction information.   The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. A complete statement on this subject can be found in your tax form instruction booklet.

Treasury Inspector General for Tax Administration.   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877- 8339 for TTY/TDD users). You can remain anonymous.

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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.

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

To use this table, first find your marital status at the end of 2002. Then, read across the line that shows your filing status and age at the end of 2002. You must file a return if your gross income was at least the amount shown in the last column.  Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States (even if you may exclude part or all of it).  When using this table, do not include social security benefits as gross income unless you are married filing a separate return and lived with your spouse at any time in 2002. (If you must include the benefits, see chapter 12 for the amount to include.)  Also, see Table 1-2 and Table 1-3 for other situations when you must file a return.
Marital Status	Filing Status	Age *	Gross Income
Single (including divorced and legally separated)	Single	under 65 65 or older	$7,700 $8,850
Head of household	under 65 65 or older	$9,900 $11,050
Married, with a child, living apart from your spouse during the last 6 months of 2002	Head of household	under 65 65 or older	$9,900 $11,050
Married, living with your spouse at the end of 2002 (or on the date your spouse died)	Married, joint return	under 65  (both spouses) 65 or older  (one spouse) 65 or older  (both spouses)	$13,850 $14,750 $15,650
Married, separate return	any age	$3,000
Married, not living with your spouse at end of 2002 (or on the date your spouse died)	Married, joint or separate return	any age	$3,000
	Single	under 65 65 or older	$7,700  $8,850
Widowed before 2002 and not remarried in 2002	Head of household	under 65 65 or older	$9,900 $11,050
	Qualifying widow(er) with dependent child	under 65 65 or older	$10,850 $11,750

*If your 65th birthday is on January 1, 2003, you are considered to be age 65 at the end of 2002.

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).

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