Don't Mess With Taxes

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You checked out my post on who has to file a tax return (thank you!) and confirmed that you're one of the lucky few who doesn't have to file a Form 1040 this year.

But maybe you should.

Even if you aren't legally required there are some good reasons to send the Internal Revenue Service a tax return anyway. Here are eight such should-file situations.

1. You are due a refund. Most U.S. workers have income tax amounts taken from their 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 to overwithheld taxpayers. The only way to get any of that prepaid tax money back is to file a tax return so Uncle Sam will send you your refund.

2. You made estimated tax payments. These usually four extra tax payments 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.

3. You are eligible for the Earned Income Tax Credit. You never want to ignore any tax breaks, but tax credits are special. They reduce any tax you owe dollar-for-dollar. And the Earned Income Tax Credit, usually referred to by its acronym EITC, is one of the best tax credits. It's refundable, meaning if your EITC amount is more than you owe, you get the excess as a tax refund.

The EITC is relatively complicated and can be confusing. But it could be worth the trouble to file if it means money. If you qualify for the EITC, you likely qualify to get no-cost help from your local Volunteer Income Tax Assistance (VITA) site to help your file a return and claim the EITC.

4. You qualify for the Additional Child Tax Credit. Parents already know that each eligible offspring is worth $2,000 from the Child Tax Credit. The Additional Child Tax Credit, or ACTC, could on 2023 returns be worth up to $1,600 of that two grand amount as a refund. Like the similarly refundable EITC (#3), the ACTC takes some added filing work. But again like the EITC, potential refund money! But you have to file to get it.

5. You are eligible for the American Opportunity tax credit. Here's another tax credit that could make filing worthwhile, this time if you're paying higher education costs. The American Opportunity tax credit is worth up to $2,500 per qualifying student. Even better, a portion of this educational tax credit, up to $1,000, is refundable to some qualifying filers.

6. You got medical insurance via the marketplace. In this case, you could get help paying for your Affordable Care Act coverage from the Premium Tax Credit, or PTC. Most Obamacare, as the program still is called by many, policy purchasers get their PTC amount in advance to pay their premium costs upfront. But you still need to reconcile that PTC payment with your final, actual qualifying amount by filing a tax return, and Form 8962 to claim the credit. And if you didn't get the PTC in advance and qualify for the help, you can get reimbursed for the premiums you paid yourself by, you got it, filing a tax return.

7. You received 1099 forms. There is a wide variety 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 you received unemployment, it's also 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? The IRS is copied on all these 1099s. A curious IRS agent just might come asking questions about that income it learned of via the third-party forms and ask about it and possibly any more money information you're not sharing.

Even the IRS itself notes on page 5 of its Publication 501 in discussing Form 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 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. Or even get you a state refund.

Now about that *asterisk. Eight states don't tax any individual earned income. They are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.

OK, New Hampshire residents, I hear you. The Granite State is en route to joining this totally no-tax club. It is phasing out its tax on interest and dividend payments, with full repeal scheduled for Jan. 1, 2025.

And while Washington doesn't tax earned income, some argue it should be bumped from the no-tax list since the Evergreen State does collect a 7 percent capital gains tax on certain high-income earners.

If any of these potentially positive tax-filing circumstances apply to you, send Uncle Sam and, if applicable, his state tax collecting cousins, a tax return.

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 any financial costs and the hassle.

You also might find these items of interest:

• 9 ways to make tax filing easier
• 8 reasons to file your tax return early
• 7 reasons to wait to file your tax return

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