For most adults, filing a tax return by the middle of April is a necessity, but for those who don't make more than the minimum amount, tax season may be easy this year.
The minimum you need to make depends on your age, marital/tax filing status and some other factors (such as whether you netted at least $400 from self-employment). The income that will trigger mandatory federal tax filing ranges from $10,300 for singles under 65 to $17,300 for “qualifying widow(ers)” who are 65 or over.
Even if you don't have to pay taxes on the income you earned, there are reasons why filing a return may be worth it: Namely, you could end up with a refund. People who do owe taxes should also be sure not to miss out on these tax refunds and credits. And check the last section to see if you need to file even if no refund is in the offing.
Refund Due: You Had Tax Withheld
If you're married, filing jointly and under age 65, you don't have to file a tax return if your household income is below $20,600. However, that doesn't mean that your employers didn't withhold taxes. Filing a tax return will produce a refund of those withholdings, provided that you have no other taxes due. It's as easy as completing a 1040EZ form in most cases, and companies like TurboTax will allow you to complete that form using its online software free of charge (see Top Software to Prepare Taxes Free by April 2016).
You're Eligible for a Tax Credit
If you're eligible for one of these six tax credits, it's definitely worth filing your federal income taxes.
– Earned Income Tax Credit
The Earned Income Tax Credit was set up by Congress to allow low wage earners the ability to hold on to more of their paycheck. If your tax obligation is less than the amount of the credit, you may be eligible for a refund of the remaining tax credit. To find out if you're eligible for this credit, click here. For details, read Earned Income Tax Credit: Why Millions Pay No Tax.
– Child Tax Credit
The IRS provides a credit for each dependent child for lower income earners. If your tax burden is lower than the maximum credit, you may receive a refund. In order to qualify, you have to meet certain requirements, which can be found by going to the IRS website.
– American Opportunity Tax Credit
The American Opportunity Tax Credit reimburses up to a certain amount each year ($2,500) for qualified education expenses. This credit was expanded to allow those who do not owe any taxes to qualify for a refund even if they wouldn't have normally filed a return. If you paid college tuition or other qualified expenses but aren't required to file a return, this hefty tax credit may provide a sizable refund check. Check out this page of the IRS website to see if you qualify.
– Lifetime Learning Credit
If you're eligible, the lifetime learning credit can give you a tax credit of up to $2,000 for qualified education expenses and there's no limit to the number of years in which you can claim it. You can't file for both it and the American opportunity tax credit (see above), and that other credit is generally worth more.
– [Health Insurance Marketplace] Premium Tax Credit
This helps individuals and families with low and moderate incomes afford to have health insurance purchased through a Health Insurance Marketplace under the Affordable Care Act. Click here to see whether you are eligible.
– Savers Credit
You may be eligible for a tax credit for some portion of the money you put into a retirement savings plan, such as a 401(k) or IRA. There are income limitations. The outside amount you can earn and still be eligible for a credit ranges from $61,000 for those who are married, filing jointly to $30,500 for “all other filers” (singles; married, filing separately; qualifying widow(er)s). For more information, see this page on the IRS website.
Refund or Not: Avoid a Penalty for Not Filing
Even if you didn't make enough money to meet the IRS minimums – and you aren't owed a refund – there are other reasons you may have to file federal taxes. If you were self-employed and earned more than $400, you sold your home, received distributions from a retirement account, owe Social Security or Medicare taxes on tips that you didn't report, or if you're subject to the alternative minimum tax, you may have to file a return. Be sure that you don't have to file a return or there could be IRS penalties if you have to file later.
The Bottom Line
Don't assume that because you didn't make enough money to file a return you shouldn't file. Many tax credits are available to you even if your tax bill will be zero this year. Some of the credits are more than $1,000 so taking the time to read about the credits available to you could result in a healthy refund check this year.