Why You Should File A Tax Return Even If You’re Not Required To

On my previous post, we discussed the various filing requirements for various filing statuses. and whether or not you are  required to file an income tax return. Some taxpayers are not required to file because their gross income is less than the sum of their standard deduction and personal exemption. The reason for this is that you will not owe any taxes or your tax liability will be zero anyways. However, even if you are not required to file, it may be best for you if you do. The most common reason is if your employer withheld taxes from your paycheck, you would want to get that money back. Another reason is  to take advantage of all the refundable credits available to you. If you don’t know it yet, refundable credits provide additional refund to you even if you do not owe any taxes.

List of Refundable Credits You May Receive

The following is the list of various refundable credits that you can claim and get additional refund during tax time even if you do not have a tax liability balance.

Earned Income Credit

The Earned Income Credit is probably the biggest credit you can get if you qualify and your income is within the limits with qualifying dependents. For tax year 2010, you can get as much as $5,666 if you have 3 or more dependents, as much as $5,036 for two qualifying dependents, as much as $3,050 for one qualifying dependent and as much as $457 if you do not have a qualifying dependent.

Additional Child Tax Credit

The Additional Child Tax Credit is equal to the lesser of the unallowed Child Tax Credit, or 15% of your earned income if your income exceeds $3,000. If your earned income is $3,000 or less and you have 3 or more qualifying children, you may be able to claim the Additional Child Tax Credit up to the amount of Social Security taxes that you paid for the year. If you are eligible to receive the Earned Income Tax Credit, the maximum amount of Additional Child Tax Credit under this method is the total amount of Social Security taxes less the amount of the Earned Income Credit for which you are eligible.

American Opportunity Credit

You can receive an additional amount of $1,000 because of the American Opportunity Credit even if you do not have a tax liability. The full credit is worth $2,500 per qualified student. However, you can only claim the full credit amount if you still have a tax liability balance of $2,500. If you’re tax liability is already zero before applying the credit, you can only claim as much as 40% of the $2,500 or $1,000.

Making Work Pay Credit

You can receive an additional $400 ($800 for married filing jointly) for the Making Work Pay Credit for 2010 tax year. This credit is only available for two tax years (2009 and 2010 only).

Home Buyers Tax Credit

The First Time Home Buyer’s Credit is worth as much as $8,000 for qualified first time home buyer and $6,500 for qualified non-first time home buyer. This credit only apply if you bought your home in 2009 and 2010.

Other Refundable Credits

Other credits include Government Retiree Credit, Health Coverage Tax Credit, and the Refundable credit for prior year minimum tax.

Source: irs.gov Publication 17