Tax Credits That Can Get You a Refund

If your income is below the minimum required for filing an income tax return, or if you don't expect a refund, you may be tempted to skip it. But if you do you might miss out on some tax credits. You could even pay zero income tax and still get a check from the Internal Revenue Service.

The minimum for a required return depends on your age, filing status, and other factors (such as whether you netted at least $400 from self-employment). For the 2021 tax year, the minimum income ranges from $12,550 for single filers under age 65 to $26,450 for “qualifying widow(ers)” who are age 65 or older.

Even if you don’t have to pay taxes on your earned income, there are several reasons why filing a return may be worth it. First of all, you could end up with a refund via a tax credit. And if you're not eligible for a refund, you still may need to file to avoid a penalty for filing late or not filing.

Key Takeaways

  • Even if you don't owe taxes, filing a return may be well worth the effort.
  • Federal minimums range from $12,550 to $26,450 for tax year 2021, but even if you fall below that, you may be eligible for certain credits that will lead to a tax refund.
  • You may be owed a payment through the Earned Income Tax Credit program.
  • For 2021, the tax credit is worth $1,502 to $6,728.
  • Other tax credits are available for parents, health insurance costs, and more.
  • In any case, if your employment income is low but you made money in other ways you may be required to file.

Refund Due: You Had Tax Withheld

If you’re married, filing jointly and under age 65, legally you don’t have to file a tax return if your household income is below $25,100 for the 2021 tax year. However, that doesn’t mean that your employers didn’t withhold taxes.

Filing a tax return will get you 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, companies including TurboTax or H&R Block will allow you to complete the form by using their online software for free.

And, if you’re eligible for one of these five tax credits, 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 onto more of their paychecks. 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, you 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 2021 tax year, the maximum credit that could be claimed by a single or married taxpayer is as follows:

EITC Income Limits for 2021 Tax Year
Number of Children  Single or Head of Household Married Filing Jointly  Maximum Credit 
0 $21,430 $27,380 $1,502
1 $42,158 $48,108 $3,618
2  $47,915  $53,865  $5,980
≥3  $51,464  $57,414  $6,728

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 to $1,502 for the 2021 tax year. 

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 get 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.

The American Rescue Plan Act of 2021, passed to relieve financial distress caused by the COVID-19 pandemic, raised the limit on the Child Tax Credit, previously $2,000, to $3,000 for children ages 6 through 17 and $3,600 for children younger than 6. The credit also is now fully refundable. The change is effective only for the 2021 tax year unless it is extended. The credit 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. If you paid college tuition or other qualified education expenses, 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 singles and families pay 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 is subject to income limitations, with a cap of $66,000 for those who are married and filing jointly or $33,000 for individual filers as of the 2021 tax year.

Known as the saver’s credit, this nonrefundable credit allows the lesser of either $1,000 or the amount in taxes that you would have had to pay without the credit.

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 earned only slightly more than $400 during the year. But you also sold your home for a profit and withdrew money from a retirement account.

You could owe Social Security or Medicare taxes that were not withheld, or you could be 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. 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.

You may be owed substantial tax credits even if your tax bill will be essentially zero. Taking the time to read about the credits available to you could result in a healthy check from the IRS.

Article Sources
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  1. Internal Revenue Service. “Publication 501, Dependents, Standard Deduction, and Filing Information,” Pages 2 and 5.

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

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

  4. Internal Revenue Service. “Form 1040.”

  5. U.S. Congress. “H.R.1436 — EITC Modernization Act of 2019.”

  6. Internal Revenue Service. “Earned Income Tax Credit.”

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

  8. Internal Revenue Service. “The Child Tax Credit Benefits Eligible Parents.”

  9. Internal Revenue Service. “American Opportunity Tax Credit.”

  10. Internal Revenue Service. “The Premium Tax Credit — The Basics.”

  11. Internal Revenue Service. “Affordable Care Act — What to expect when filing your tax return.”

  12. Internal Revenue Service. “Eligibility for the Premium Tax Credit.”

  13. Internal Revenue Service. “Retirement Savings Contributions Credit (Saver’s Credit).”

  14. Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes).”

  15. Internal Revenue Service. “Topic No. 556 Alternative Minimum Tax.”

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

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