Don't Mess With Taxes

You aren't legally required to file a federal tax return, but maybe you should. Here are six reasons why it might be a good idea. (Photo by Unsplash+ in collaboration with Getty Images)

Millions of taxpayers have filed their returns so far this year. Millions more are working on their taxes.

But not you. 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.

You might want to rethink that no-filing decision.

Even if you aren't legally required to send the Internal Revenue Service a tax return, there are some good reasons to do so. Here are six.

1. You are due a refund. Yes, this is too obvious. Most people know when they’re due a refund and make sure to file as soon as possible to get that money. Sometimes, however, people don’t realize they’ve overlooked a refund. It happens every year. And if you don’t file the paperwork to claim the money, after three years Uncle Sam gets to keep it.

So look at your tax situation and make sure that, if money was withheld from your paycheck, it wasn’t too much. The only way to get it is to file a tax return.

2. You made estimated tax payments. Some of that overpayment might have been due to estimated tax payments. These usually four extra tax amounts a year are made on earnings that aren't subject to withholding, such as earnings from gig jobs or investments or gambling winnings. Making the payments is smart, since if you don’t the IRS will tap you for the tax money and penalty and interest charges. But again, the only way to get your extra estimated amount back is via a refund when you file a return.

Don’t miss credit claims: Another reason you might be due some refund cash is that you’re eligible for certain tax breaks. This is particularly true of tax credits, which reduce any tax you owe dollar-for-dollar.

A handful of credits also are refundable, meaning just what it sounds like. The credit could mean a tax refund. And that leads to the next three tax credit reasons below that could make filing worthwhile.

3. You are eligible for the Earned Income Tax Credit. The Earned Income Tax Credit, usually referred to by its acronym EITC, is one of the best tax credits. Many people who are eligible for the EITC ignore it, in part because it 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 2024 returns be worth up to $1,700 of that two grand amount as a refund. Like the similarly refundable EITC, 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.

Covering your tax assets: The U.S. tax system relies on all us earners voluntarily reporting our income each year. But the IRS also has ways to verify what we enter on our 1040s.

The most common way is the W-2 form that employees get each year, detailing how much they made and how much tax was taken out of our paychecks.

Then there’s other income that’s not subject to withholding, like that on which you paid estimated taxes mentioned earlier. In many of these cases, the IRS has ways of knowing about those amounts, too.

And that gets us to the sixth and final reason you might want to file a tax return even if you’re not legally required to do so.

6. You received 1099 forms. There is a wide variety of 1099 tax statements that show how much money you got during the year from contract jobs that didn’t require your employer to withhold taxes. There also are differing levels of earnings that trigger the issuance of various 1099s.

Self-employed individuals generally get 1099-NECs for their nonemployee work if they earned $600 or more. If you received unemployment, all of it also is also taxable and the job-loss benefits amount will show up on a 1099-G.

Investors get assorted 1099-DIV, 1099-INT, and/or 1099-B forms, again reporting how much their portfolios or sales from them paid off during the year.

And if you made more than $5,000 from selling products or services via what is known as a third-party settlement organizations, or TPSOs — think PayPal, Venmo, Cash App, eBay, Etsy, Uber, Lyft, Airbnb, and more — you should have received earlier this year a Form 1099-K detailing those amounts.

Even if all the dollars on all those various 1099s don’t add up to enough to require you to file, you should anyway. Why? The IRS also got copies of your 1099s. A curious IRS agent just might come asking questions about that income it learned of from the third-party forms and ask about it, and possibly any more money information you're not sharing.

Don’t just take my word for it. The IRS itself notes on page 5 of its Publication 501 in the “Who Should File” section 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!

No-cost ways to file: If any of these half dozen potentially positive tax-filing circumstances apply to you, send Uncle Sam a return.

Yes, it will take some work. But there's software if you’re a do-it-yourselfer, or software at no cost through the eight companies participating this filing season in Free File.

Another free option is the IRS’ own tax preparation and e-filing program Direct File, which is available to eligible taxpayers in 25 states.

And, of course, there’s the previously mentioned VITA (and for older filers Tax Counseling for the Elderly, or TCE) assistance.

Yes, it’s more work. But if your filing gets you a refund, or keeps the IRS off your back, that should more than make up for any hassle.

You also might find these items of interest:

• 7 tips for first-time tax return filers
• 10 reasons to file your tax return early
• 5 reasons to wait to file your tax return

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