8 tax tips for first-time filers
Online portal for businesses to file 1099s with IRS now open

10 reasons to file a tax return even if you don't have to

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In 2019, the Internal Revenue Service received nearly 156 million tax returns. Then came the COVID-19 pandemic.

In 2022, the number of 1040s filed hit 169.7 million. The increase continued in 2021 with the IRS receiving 169.1 million returns, and into 2022, when 164.3 returns were sent to the tax agency.

The main reason for the 2020-2022 filing spikes was the coronavirus-related financial help — economic impact payments and increased advance Child Tax Credit amounts — that the IRS was tasked with delivering.

Many, OK most, of those millions who hadn't filed before 2020 were folks who weren't required by law to submit federal tax returns. But the only way they could get the COVID benefits was to file something.

That's a good lesson to keep in mind now, even without pandemic payments. There are other tax benefits you could be entitled to, but can't get unless you file a return.

Here are 10 potential should-file situations, starting with the ones that could get you a tax refund.

1. You had too much tax was withheld. Most of us have income tax amounts taken from our regular paychecks. Other sources of income also sometimes take some tax amounts off the top. When too much is withheld, you're due the excess as a refund.

But the IRS doesn't automatically send this money out to the overwithheld taxpayers. The only way to get any of that prepaid tax money back is to file a tax return to collect your refund.

2. You made estimated tax payments. These extra tax payments, usually four a year, are made on earnings that aren't subject to withholding. Estimated taxes essentially are the self-employed version of paycheck withholding, but also are used to cover income from investment earnings or sales that produce capital gains sales. You want to make sure the IRS knows that you made estimated payments. And you definitely want to file if you overpaid them. As with excess withholding, the only way to get your extra estimated amount back is via a refund when you file a return.

Then there are tax credits. This type of tax break reduces any tax you owe dollar-for-dollar. Some of them are refundable. As that descriptor indicates, any excess credit after your tax bill is erased comes back to you as a refund.

3. You're eligible for the Earned Income Tax Credit. This tax credit, usually referred to by its acronym EITC, is available to lower-earning workers. It also is a refundable tax credit. The maximum EITC amounts, determined by your family size, for 2022 filings are —

  • $6,935 for taxpayers filing jointly who have three or more qualifying children,
  • $6,164 with two qualifying children,
  • $3,733 with one qualifying child and
  • $560 if you don't have any qualifying children in 2022.

4. You qualify for the Additional Child Tax Credit. The COVID-prompted enhanced Child Tax Credit has expired, but the Additional Child Tax Credit (ACTC) is still around to help larger families. While the $2,000 Child Tax Credit can only zero out your tax bill, the ACTC could get qualifying filers up to $1,500 per child as a refund.

5. You qualify for the American Opportunity tax credit. This educational tax break could give you a credit of up to $2,500. Even better, a portion of the American Opportunity tax credit, up to $1,000, is refundable to some qualifying filers.

6. You qualify for the Affordable Care Act's Premium Tax Credit. Yes, the tax penalty for not buying medical coverage is gone. But Obamacare, the colloquial name many still use for the Affordable Care Act (ACA) medical coverage they get through a health care marketplace, is still around. So is this tax break that helps many of those insurance buyers pay for their policies.

In most cases, the Premium Tax Credit (PTC) is made in advance to help pay the premiums. But if you didn't use that option, you can get reimbursed for the premiums you paid yourself. To do that, you have to claim the PTC when, you got it, you file your tax return.

Finally, there are some other circumstances where filing a tax return, even if you don't have to, is a good idea.

7. You got 1099 forms. There's a multitude of 1099 tax statements that show how much money you got during the year from sources where a W-2 isn't used. There also are differing levels of earnings that trigger the issuance of various 1099s.

Self-employed individuals get 1099-NECs for their nonemployee work if the payments exceeded $600. If you received unemployment, it's all taxable. Those job-loss benefits will show up on a 1099-G. And investors get assorted 1099-DIV, 1099-INT, and/or 1099-B forms showing how much their portfolios or sales from them paid off during the year.

Even if all this money doesn't add up to enough to require you to file, you should anyway. Why?

First, you might have made enough to require you file self-employment (SE) taxes on the money. The earnings trigger requiring payment of SE taxes is $400.

Second, when 1099s are issued, the IRS is copied. A curious agent just might come asking questions about that income it heard about. That could lead to more inquiries from the IRS examiner about other earnings not subject to third-party reporting.

The IRS itself notes on page 5 of its Publication 501 in discussing the 1099-B that "filing a return may keep you from getting a notice from the IRS." That's a convincing enough of a reason for me to file!

8. You want to establish a placeholder for tax carryforwards. There are some deductions and credits where, if you don't use them all in one tax year, you can use the remainder on subsequent filings.

An entrepreneur — let's call her Sue in this example — had a terrible 2022 and ended up in the red. Sue also qualified for the home office deduction. But she can't use the home office write-off since she didn't make a profit, as the deduction can only be used against any profit.

Sue can, however, carry the unused home office deduction into this year, when she expects (fingers and toes crossed) to make more self-employment money. But in order to claim that carryforward amount in a better-paying year, she must file for the initial claim.

9. You must file a state return. Most states collect some sort of income tax. And most of those jurisdictions use their residents' federal tax filings as the basis for the state returns. In those places, submitting a federal version could help you comply with your state tax responsibilities. It might even get you a state refund.

10. You want to be in the system for future automatic benefits. The added job of distributing COVID pandemic benefits caused lots of headaches for the IRS, taxpayers, and folks who didn't have to legally file returns. It wasn't the first time the IRS had to deal with added work due to new laws, including automatically sending out money. Remember the tax rebates issued during the George W. Bush administration?

It won't be the last. The IRS likely will be instructed to distribute future special, temporary government relief. As we learned from the coronavirus payments, the only way to get that money is to already be in the IRS' system. The easiest way to get there is to file a tax return.

If any of these circumstances apply to you, sending Uncle Sam a tax return is a good idea.

Yes, it will take some work. But there's software, including no-cost via Free File, and tax professionals that can help.

And where your filed tax paperwork gets you a refund, that should more than make up for the hassle.

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