Do I Have to File Taxes if I Don’t Owe?

If you’re like most people, you would probably prefer almost any activity to sitting down and preparing a tax return. Of course, if you expect to owe, you know you need to file taxes. And if you’re expecting a refund, the only way to get it is to file your income tax return. But what if you know that you won’t owe the government, and you don’t expect to get a refund? Is there any advantage to filing an income tax return, or any penalty for failing to file?

The good news is, if you don’t owe taxes, the federal government is not going to punish you for failing to file a return. But before you put those blank tax forms in the wastepaper basket, consider what you may be giving up if you don’t file a tax return.

Benefits of Filing Taxes

There are worse things than having to file taxes…like giving up what is, essentially, free money. Here are several ways you could qualify to receive money from the government just for filing your tax return.

The Earned Income Tax Credit (EITC)

The Earned Income Tax Credit was established in 1975 to make paying Social Security taxes less burdensome for workers and to create an incentive for people to work. The amount of the credit depends on your filing status and the number of children you claim as dependents on your income tax return.

Single filers who earned $53,057 or less in 2022, and joint filers who earned $59,187 or less can qualify for the credit. You may qualify for the EITC even if you are self-employed. However, if you have investment income of $10,300 or more, you are not eligible for this tax credit.

The amount of the credit may be as little as $560 or as much as $6,935. The EITC is a refundable tax credit, which means that if the amount of the credit is more than the amount of tax you owed to the government, you get the difference back. If you owe no tax at all, you get the entire amount of the credit.

Child Tax Credit (CTC) or Credit for Other Dependents

You may remember hearing about the expanded child tax credit that was available to families to offset the financial difficulties many families with kids experienced during the pandemic. While the “expanded” part of the child credit is no longer in effect, the child credit as it existed before the pandemic is still available.

You may qualify for this credit if you have a dependent child or children under the age of 17; the amount of the credit is up to $2,000 per dependent child. The credit begins to phase out for $200,000 of income for single filers and heads of household, or $400,000 for married taxpayers filing jointly. The Child Tax Credit is partially refundable, meaning that even if you don’t owe taxes, you can still receive $1,500 per child.

If you don’t have children, you may still be able to deduct an adult dependent who lives with you and for whom you pay at least 50% of expenses when you file taxes, so long as they meet income limits and no one else can claim them on a tax return.

Education Credits

To encourage Americans to pursue further education, the federal government created the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). In order to qualify for these credits, you, your spouse, or one of your dependents must have been a student enrolled at least half-time for one academic enrollment period. To qualify for the AOTC, a student must be enrolled in a degree program or pursuing another recognized education credential, and must not have finished their first four years of higher education at the beginning of tax year 2022. Qualifying students must not have had a felony drug conviction and may not have claimed the credit for more than four tax years.

The AOTC and LLC are not refundable credits; that means you won’t get any money back from them if you don’t owe any taxes, but you can use the credit (worth 20% of the first $10,000 of qualified education expenses or a maximum of $2,000 per return) to pay any tax that you do owe. There are income limits for these credits, so make sure you qualify before you apply for and accept them or you may have to pay them back.

Inflation Reduction Act Rebates and Credits

The Biden administration passed a broad Inflation Reduction Act in August 2022. Among its many provisions is $739 billion dollars to incentivize clean energy upgrades. For instance, if you purchased an electric vehicle in 2022, you may qualify for a $7,500 tax credit; if you installed a solar roof during the year, you may be eligible for a credit of up to 30% of the cost.

The Bottom Line: You Should File Taxes, Even If You Don't Owe

Even if you don’t owe taxes, there are benefits to filing a tax return that you may not be aware of. To learn more (and avoid leaving free money on the table), schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.