9 Reasons to File a Tax Return Even If You Don't Have To
Although you might not be required to file a tax return, it might be wise to file one today anyway. Here are a few reasons why.
Filling out tax forms is a pain in the you-know-what. So why on earth would anyone file a tax return if they don't have to? Well, actually, there's one very important reason why – you might get a big, fat check from the government.
People with income under a certain amount (see table below) aren't required to file a tax return because they won't owe any tax. But if you qualify for certain tax credits or already paid some federal income tax, Uncle Sam might owe you a refund that you can only get by filing a return. Think about that for a minute!
If you want to know more, here are 9 reasons why you might want to file a tax return even if you don't have to. Even though dealing with taxes can be a real drag, it's probably worth it if you wind up with a much fatter wallet in the end. (Note that the IRS won't penalize you for filing a late return if you're getting a refund.)
Federal Tax Return Filing Requirements (2020 Tax Year):
Filing Status and Age at End of 2020
Income Required to File 2020 Return
Single; Under 65
Single; 65 or Older
Married Filing Jointly; Both Spouses Under 65
Married Filing Jointly; One Spouse 65 or Older
Married Filing Jointly; Both Spouses 65 or Older
Married Filing Separately; Any Age
Head of Household; Under 65
Head of Household; 65 or Older
Qualifying Widow(er); Under 65
Qualifying Widow(er); 65 or Older
If an employer withheld federal income taxes from your paycheck last year, or taxes were withheld from other sources of income in 2020, you might be entitled to a refund if you file a 202 tax return.
If you don't owe any tax – and, therefore, aren't required to file a return – then it only makes sense that any taxes you already paid should be refunded to you. But you won't get that money back if you don't file a 1040 form.
Withholding isn't the only way you could have already paid taxes for 2020 to Uncle Sam. For instance, if you received income as an independent contractor or were otherwise self-employed, you may have made estimated tax payments last year. If you filed a 2019 tax return, you may have applied your refund from that return to your 2020 taxes (it's optional).
If you paid 2020 taxes in advance in one of these two ways, make sure you file a tax return even if your overall income is below the applicable filing threshold amount. That will allow you to get that money back.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is for lower income working people. If you qualify for the credit, then you definitely want to file a tax return. The credit is "refundable," meaning that if it's worth more than the income tax you owe, the IRS will issue you a refund check for the difference. (With a "nonrefundable" credit, you don't get a refund because the tax you owe isn't reduced below zero.) The EITC is the first of several refundable credits that we'll discuss.
For 2020 tax returns, the maximum EITC ranges from $538 to $6,660 depending on your income and how many children you have. (For your 2021 return, the range will be $1,502 to $6,728.) So, it's well worth the time it takes to complete a tax form if you qualify for the credit.
The income limits to qualify for the EITC are fairly low. For example, if you don't have kids, you can qualify if your 2020 earned income and adjusted gross income (AGI) are each less than $15,820 for singles and $21,710 for joint filers. (For 2021, those income limits rise to $15,980 and $21,920, respectively.) If you have three or more children and are married, though, your 2020 earned income and AGI can be as high as $56,844 ($57,414 in 2021). Plus, you can use your earned income from 2019 to determine the EITC for the 2020 tax year if it results in a higher credit amount. There are many exceptions and other rules, but the IRS has a handy online tool to help you figure out if you're eligible for the credit.
For temporary changes to the 2021 EITC, see 6 Biden Stimulus Benefits That Pack the Biggest Punch.
Child Tax Credit
For the 2020 tax year, parents with children 16 years old or younger may qualify for the child tax credit. The maximum credit amount is $2,000 per child, but up to $1,400 of the credit can be refundable. And that's per child! So, like the EITC, you could end up with a nice refund check by filing a return just to claim this credit.
Not sure if you qualify for the credit? The IRS has an online tool to help with that.
Also note that, if you don't qualify for the child tax credit, you might be able to claim a different tax credit for your dependents. There's something called the "credit for other dependents," and it's worth up to $500 for each qualifying dependent. It's a nonrefundable credit, though. So, it won't trigger a refund if you otherwise don't owe any tax.
There are a lot of temporary enhancements to the child tax credit for the 2021 tax year. The amounts are higher, more children qualify, it's fully refundable, and the IRS will make advance monthly payments later this year (which you can estimate using our 2021 Child Tax Credit Calculator). For all the details, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.
Recovery Rebate Credit
If you didn't get a first- or second-round stimulus check, or you didn't get the full amount, you may be able to get paid now by claiming the recovery rebate credit on your 2020 tax return. Those two stimulus checks were actually just advance payments of the credit. So, if you didn't get the money earlier, you should get it now (assuming you're eligible).
You're generally eligible to claim the recovery rebate credit on your 2020 return if, in 2020, you:
- Were a U.S. citizen or U.S. resident alien;
- Can't be claimed as a dependent on another person's tax return; and
- Have a Social Security number valid for employment that's issued before the due date of your 2020 tax return (including extensions).
Calculation of the recovery rebate credit is generally the same as the calculation for the first two rounds of stimulus checks, except that they're based on information from different sources. The first-round stimulus checks were typically based on information from either your 2018 or 2019 tax return, whichever was most recently filed when the IRS began processing your return. If you didn't file a return for either of those two years, you could send the IRS the necessary information through an online portal. If you received benefits from the Social Security Administration (SSA), Railroad Retirement Board, or Department of Veterans Affairs (VA), the IRS got the information it needed from those other government agencies. Second-round stimulus checks were based on either your 2019 return, information previously obtained through the IRS's non-filers online portal, or information received from another government agency. However, the amount of your recovery rebate credit is based entirely on information found on your 2020 tax return. For more information, see What's the Recovery Rebate Credit?
There will also be a recovery rebate credit for 2021 tax year returns. That will be for people who didn't receive a third-round stimulus check (or didn't receive the full amount). To calculate the amount of your third stimulus check, use Kiplinger's Third Stimulus Check Calculator. For more information on third-round stimulus checks, see Your Third Stimulus Check: How Much? When? And Other FAQs.
American Opportunity Tax Credit
The American Opportunity credit covers expenses for students who are in their first four years of college. The credit is worth up to $2,500, and it can be claimed by a parent, spouse or student who is not claimed as a dependent who for tuition, fees, or textbooks.
The credit is partially refundable. So, if the credit is worth more than your tax liability for the year, you'll get a refund check for 40% of the remaining amount – up $1,000 for each qualifying student. That should be enough to get you to complete a tax return if you don't otherwise have to file one.
As with the EITC and child tax credit, the IRS has an online tool to help you figure out if you're eligible for the American Opportunity credit. It will also help you determine if you can claim the Lifetime Learning credit or the tuition and fees deduction (2020 was the last year you can claim the tuition and fees deduction).
Premium Tax Credit
The premium tax credit helps people pay for insurance they buy through the health insurance marketplace (i.e., Obamacare). The credit is available for people with household incomes ranging from 100% to 400% of the federal poverty level. The amount of the premium tax credit is based on a sliding scale, so that people with a lower income get a larger credit.
An estimated credit is calculated when you go on a marketplace website such as healthcare.gov to buy insurance. At that point, you can choose to have the credit paid in advance directly to the insurance company to lower your monthly payments, or you can choose to get all the benefit of the credit when you file your tax return for the year. If you elect to have advance premium tax credit (APTC) payments made to the insurer, you will have to reconcile the amount paid in advance with the actual credit you compute when you file your tax return. Either way, you will need to complete Form 8962 and attach it to your tax return.
The premium tax credit is another refundable credit. So, if the amount of the credit is more than the amount of the tax you owe, you'll receive the difference as a refund if you file a tax return. If you owe no tax, you can get the full amount of the credit as a refund. However, if your actual allowable credit is less than your APTC payments, the difference is usually subtracted from your refund or added to the tax you owe – except that the repayment of excess advance premium tax credit (APTC) amounts was suspended for 2020. Therefore, if you already filed your 2020 tax return and had excess APTC payments, the IRS will automatically reduce the excess APTC repayment amount to zero and send you a refund if one is required.
Be warned, though, that the IRS typically looks for people who receive advance credits and either don't file returns or file returns incorrectly reporting the credit. So, monkeying around with the premium tax credit is a good way to get your return audited.
Health Coverage Tax Credit
The health coverage tax credit helps certain displaced workers and pre-retirees pay for health insurance. Specifically, it is available to (1) people eligible for Trade Adjustment Assistance allowances because of a qualifying job loss, and (2) people between 55 and 64 years old whose pension plans were taken over by the Pension Benefit Guaranty Corporation. The credit is worth up to 72.5% of payments for qualified health insurance coverage.
As with the other credits we've mentioned, the health coverage credit is refundable. So, if you can claim the credit, you'll want to file a tax return just to claim the credit, even if you're not required to file a return. By doing so, you can get a federal income tax refund check sent to you.
As with the premiums tax credit, the health coverage credit can be paid in advance. That also means that your refund will be smaller (or eliminated) if the advance credit payments are greater than your actual allowable credit. There's no suspension of 2020 excess payments of the health coverage credit like there is for the premium tax credit.
Also note that the health coverage credit was set to expire at the end of 2020, but it was extended to December 31, 2021.
Credits for Sick and Family Leave
Many employers were required to provide paid sick and family leave in 2020 for workers affected by COVID-19. However, to shift most of the financial burden for paid leave off the employer's back, tax credits were also made available to reimburse employers for some of the cost. Self-employed people who couldn't work because of the coronavirus got similar refundable tax credits, too.
The credits are generally equivalent to the amount of qualified sick or family leave wages the self-employed person would have received if he or she were an employee of an employer. To be eligible for the 2020 self-employment credits, you must have regularly carried on a trade or business during 2020 and been eligible to receive sick or family leave wages if you had been an employee of an employer (other than yourself). Complete Form 7202 to calculate the credit amount.
People who paid household employment taxes might also be able to claim a refundable credit for a portion of any sick or family leave wages you paid that were related to the coronavirus. The amount of this credit is shown on Schedule H, Line 8e.
As with the other refundable credits discussed, the credits for sick and family leave can lower your tax bill or even result in a tax refund. So, make sure you claim them even if you aren't required to file a 2020 tax return.