Tax Credits That Can Get You a Refund

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 required to file, tax season may be easy this year.

The minimum that you need to make to require filing a tax return with the Internal Revenue Service (IRS) depends on your age, marital/tax filing status, and other factors (such as whether you netted at least $400 from self-employment). For individual filers, the income that will trigger a mandatory filing of a federal tax return currently ranges from $12,400 for single filers under age 65 to $26,100 for “qualifying widow(ers)” who are 65 or older (for tax year 2020).

Even if you don’t have to pay taxes on the income that you’ve earned, then there are still several reasons why filing a return indeed may be worth it. First of all, you could end up with a refund via a tax credit. For those who are not eligible for a refund, you still may need to file to not receive penalties for filing late or not filing. Here, we go over some of the benefits of filing your taxes, even if you’re at those minimum filing requirements for income.

Key Takeaways

  • As tax season approaches, you may look at your past year’s income and think that it was too low to send in a tax return.
  • Federal minimums range from $12,400 to $24,800 for tax year 2020, but even if you fall below that, you may be eligible for certain credits that will lead to a tax refund.
  • If you have low employment income but conducted other taxable events—for example, through an investment, a real estate transaction, or a retirement account—then you also may need to file.
  • Failure to properly file a tax return, even if it has little income to report, can result in fines, fees, and back taxes—so be cautious if you decide to forgo filing.

Refund Due: You Had Tax Withheld

If you’re married, filing jointly and under age 65, then legally, you don’t have to file a tax return if your household income is below $24,800 for your 2020 taxes. 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 an IRS Form 1040 in most cases, and companies like TurboTax or H&R Block will allow you to complete that form by using their online software free of charge.

If you’re eligible for one of these five tax credits, then it’s definitely worth filing your federal income taxes.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) was set up by Congress to allow lower-wage earners the ability to hold on to more of their paycheck. Households that qualify for the credit can reduce their tax liability to zero, in which case they will owe no income taxes. If your tax obligation is less than the amount of the credit, then you still may be eligible for a cash refund of the remaining credit amount.

To qualify for the EITC, a taxpayer’s earned income and adjusted gross income (AGI) must be below certain income limits. For the 2020 tax year, the maximum amount of the credit that could be claimed by a single or married taxpayer is as follows:

As a result of the American Rescue Plan Act of 2021, the Earned Income Tax Credit (EITC) originally capped at $543 for childless households increases for those same households in 2021 to $1,502. 

2020 EIC Income Limits
Number of Children Single or Head of Household Married Filing Jointly Maximum Amount of Credit
0 $15,570 $21,370 $529
1 $41,094 $46,884 $3,526
2 $46,703 $52,493 $5,920
≥3 $50,162 $55,952 $6,557

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, then you may receive a refund. The Child Tax Credit is currently $2,000 per minor dependent. This tax credit is phased out for higher-income families, as it was intended, to help low- to middle-income workers. To qualify, you are subject to maximum income requirements.

Note that as a result of the American Rescue Plan Act of 2021, signed into law by President Biden, the limit on the Child Tax Credit, previously $2,000, has been raised to $3,000 for children ages 6 through 17 and $3,600 for children younger than 6. The credit also is now fully refundable; previously, only $1,400 was refundable. These changes are part of the American Rescue Plan Act of 2021 and are effective only for the 2021 tax year, unless extended by an additional act of Congress. It is phased out for singles with incomes above $75,000 and couples with incomes above $150,000.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) reimburses taxpayers up to $2,500 a year for qualified education expenses. This credit was recently expanded to allow those who do not owe any taxes to still qualify for a refund even if they normally wouldn’t have filed a return. If you paid college tuition or other qualified education expenses, then this generous tax credit could provide a nice refund check but is limited to a maximum of four years of eligibility per student. Check out this page on the IRS website to see if you qualify.

Health Insurance Marketplace Premium Tax Credit

This tax credit, often known simply as the premium tax credit, helps low- to moderate-income individuals and families afford the premiums associated with health insurance purchased through the Health Insurance Marketplace under the Affordable Care Act (ACA).

To be eligible for the premium tax credit, your household income must be at least 100%—but no more than 400%—of the federal poverty line for your family size. Other qualifications apply, so click here to see whether you are eligible.

Saver’s Credit

You may be eligible for an additional tax credit for some portion of the money that you put into a qualified retirement savings plan, such as a 401(k) or an individual retirement account (IRA). This credit also is subject to income limitations, with a cap of $64,000 for those who are married and filing jointly or $32,000 for individual filers. Known as the saver’s credit, this nonrefundable credit allows the lesser of either $1,000 or the tax amount that you would have had to pay without the credit.

Refund or Not: Avoid a Penalty for Not Filing

Even if you didn’t make enough money to meet the IRS minimums to be owed a refund, there are still good reasons to file your federal taxes. For instance, say you were self-employed and only earned slightly more than $400, but you also sold your home and received distributions from a retirement account. Potentially, you would owe Social Security or Medicare taxes that were not withheld, or you’re subject to the alternative minimum tax (AMT), which would require a return to be filed. Be absolutely sure that you don’t have to file a return because, otherwise, there could be IRS penalties and back taxes owed if you have to file later.

The Bottom Line

Don’t assume that you shouldn’t file a tax return just because you didn’t make enough money to file one. Many tax credits are available to you even if your tax bill will be essentially 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.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. “Publication 501, Dependents, Standard Deduction, and Filing Information,” Pages 2 and 5. Accessed March 29, 2021.

  2. Internal Revenue Service. “Publication 501, Dependents, Standard Deduction, and Filing Information,” Page 5. Accessed March 29, 2021.

  3. Internal Revenue Service. “Publication 501, Dependents, Standard Deduction, and Filing Information,” Page 2. Accessed March 29, 2021.

  4. Internal Revenue Service. “Form 1040.” Accessed March 29, 2021.

  5. U.S. Congress. “H.R.1436 — EITC Modernization Act of 2019.” Accessed March 29, 2021.

  6. Internal Revenue Service. “Earned Income Tax Credit.” Accessed March 29, 2021.

  7. U.S. Congress. “American Rescue Plan Act of 2021 (H. R. 1319).” Accessed March 29, 2021.

  8. Internal Revenue Service. “The Child Tax Credit Benefits Eligible Parents.” Accessed March 29, 2021.

  9. Internal Revenue Service. “American Opportunity Tax Credit.” Accessed March 29, 2021.

  10. Internal Revenue Service. “The Premium Tax Credit — The Basics.” Accessed March 29, 2021.

  11. Internal Revenue Service. “Affordable Care Act — What to expect when filing your tax return.” Accessed March 29, 2021.

  12. Internal Revenue Service. “Eligibility for the Premium Tax Credit.” Accessed March 29, 2021.

  13. Internal Revenue Service. “Retirement Savings Contributions Credit (Saver’s Credit).” Accessed March 29, 2021.

  14. Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes).” Accessed March 29, 2021.

  15. Internal Revenue Service. “Topic No. 556 Alternative Minimum Tax.” Accessed March 29, 2021.

  16. Internal Revenue Service. “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges.” Accessed March 29, 2021.