Believe it or not, many people don’t have enough income after tax deductions to owe federal income taxes.
The Tax Cuts and Job Act of 2017 roughly doubled the standard deduction amounts, not to mention that those amounts increase regularly to account for inflation, and taxpayers who make less than their standard deduction typically don’t owe taxes.
According to recent analysis by the Tax Policy Center, 40% of households are expected to owe no taxes for the 2022 tax year — the one for which returns are due this spring.
However, just because you don’t owe taxes doesn’t necessarily mean you shouldn’t file a tax return. There are several situations in which it literally pays to file a return anyway.
Read on for a look at some of the most common reasons why someone who owes no taxes could benefit from filing a federal income tax return.
How to tell if you are required to file
Now that you know many households don’t owe federal income taxes, you might be wondering how to tell if you do.
Whether the IRS requires you to file a return depends on a few factors, including your income, tax-filing status and eligibility for certain tax breaks. Check out the IRS’ 2022 Filing Requirements Chart for Most Taxpayers to get a rough idea, or use the agency’s free Interactive Tax Assistant tool for a more specific answer based on the specifics of your situation.
But again, even if you are required to file a return, you still should do so if a situation like one of the following applies to you.
1. Your employer withheld income taxes
Even if you did not make enough money to owe taxes, your employer could have withheld income taxes from your paycheck. Check out box 2 on your Form W-2 for any federal income tax withheld. If you do not owe taxes but there is a dollar amount in that box, filing a tax return will net you a refund of that amount.
In other words, if it turns out you didn’t earn enough income to owe taxes, Uncle Sam owes you your federal withholding back. But you must file a return to get it back.
This situation is very common with teenagers and young adults who work part-time but are still be claimed as dependents by their parent or guardian.
2. You qualify for the earned income credit
The earned income tax credit is currently for workers who are ages 25 through 64 and have low or moderate income. It’s especially valuable for taxpayers with dependent children — up to $6,935 for the 2022 tax year, depending on how many qualifying dependents they have and how much income they earned in 2022.
The earned income credit is also refundable, meaning that it could not just lower your tax bill but also net you a tax refund — even if you don’t owe taxes. So if you qualify for this credit, you will probably want to file a return, even if you aren’t required to do so.
3. You qualify for the child tax credit
The child tax credit is another refundable credit. So it can reduce your tax liability to zero and, if any credit remains after reducing your liability, it can be refunded to you.
For the 2022 tax year, this credit is worth up to $2,000.
4. You qualify for the American opportunity tax credit
During their first four years of college, students might be eligible for this partially refundable tax credit. It’s worth up to $2,500 in total, with up to $1,000 of that being refundable. So even if you don’t have a tax liability, you could get a tax refund of up to $1,000 if you’re eligible for the American opportunity tax credit.
5. Income verification purposes
Many federal, state and other government assistance programs require a tax return for income verification. For example, some seniors may receive a property tax deduction or reduction in homeowners’ association fees if they are able to show proof of income below a certain amount.
A tax return filed for informational purposes only is often known as a “zero-dollar return.”
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