Why You Should File a Tax Return, Even If You Don’t Need One
Taxpayers who earn less than the standard deduction — $12,550 for single filers in 2021 — don’t have to file a tax return.
However, it may be a good idea to file one anyway, even if you technically don’t need one. This is because the Internal Revenue Service may owe you money, especially if you have dependents.
It can come from two sources: by recovering the taxes you have already overpaid or by claiming tax credits to which you are entitled, including the money from the third stimulus check if you have not already received it. .
The first is a refund of taxes you don’t actually owe: single taxpayers under 65 who earn less than $12,550 don’t have to pay tax on their earnings, nor do co-filers of under 65 who earn less than $25,100. But if you earned less than those amounts in 2021 and taxes were withheld by an employer — say, for a full-time job you held for a few months in 2021 — you may be eligible for a refund.
Refundable tax credits can also be extremely valuable for people who don’t normally file taxes because they can be paid in cash even if you don’t owe any taxes. Non-refundable credits and other deductions, on the other hand, can only be used to reduce the amount of taxes you owe.
Below are six commonly claimed credits that are refundable in 2021.
1. The earned income tax credit
The EITC is a refundable tax credit of up to $6,728 for low- and middle-income workers. The credit amount is based on the number of children you apply for – up to three or more – although you can still apply if you don’t have children. In the event that no eligible child is claimed, the payment is $1,502.
To receive this credit, your eligible adjusted gross income (AGI) must be below certain thresholds, depending on the number of eligible children you are claiming. But you don’t have to worry about it if you don’t earn enough to justify a tax return; your AGI is low enough to qualify for full credit whether or not you have children.
There are other eligibility requirements as well, but your best bet is to use the IRS’ EITC wizard to determine if you’re eligible. The claim for this credit is made on your tax return using Schedule EIC.
2. Child tax credit
The CTC is an annual tax credit available to taxpayers with children. The American Rescue Plan made the credit fully refundable for the 2021 tax year and increased the maximum amount from $2,000 to $3,600 for eligible children under age 6 and $3,000 for children under 18 years old.
For the 2021 tax year, you get the full credit per child if your AGI is less than $75,000 for single filers, $112,500 for heads of families, and $150,000 for married filers jointly. The credit amount begins to disappear beyond these AGI thresholds, stopping altogether at $220,000 and $440,000, respectively for single and joint filers.
This credit is unusual in that most eligible taxpayers have already received half of the credit in monthly installments, sent from July to December 2021. The other half of that amount – or the full amount, if you don’t ever received monthly payments – can be claimed using Schedule 8812 on your 2021 federal income tax return.
3. The Recovery Discount Credit for Missing Stimulus Check Payments
As part of pandemic-related economic stimulus bills, most Americans received three stimulus checks, also called economic impact payments, in 2020 and 2021. The third payment was $1,400 per adult, plus $1,400 per child or dependent adult.
The first two checks can no longer be claimed, but if you haven’t received the third in 2021, or you owe more than you received, you can still claim the funds as a “recovery rebate credit on your 2021 federal income tax return. Although certain income requirements apply, you are eligible for the full amount if you earned less than $75,000 as a single filer or $150,000 as a joint filer.
To learn more about how the rebate amount is calculated and how to claim it, see this IRS webpage.
4. Child and Dependent Care Credit
This credit covers some of the costs associated with caring for a disabled child or dependent, including after-school programs, babysitters, or daycare, if that care allowed you to work.
The American Rescue Plan made this credit fully refundable in 2021 only. The maximum eligible expense for this credit is $8,000 for one eligible person and $16,000 for two or more people.
The exact amount of credit you may qualify for depends on a few factors, including income. To find out what you might be owed, use this IRS tool. Application for this credit is made using Form 2441.
5. The US Opportunity Tax Credit
This credit covers up to $2,500 for eligible university expenses and is partially refundable. If the credit reduces the amount of tax you owe to zero, you can get a refund of 40% of any remaining amount of the credit, up to $1,000.
To be eligible for the AOTC, students must be in their first four years of graduate school and enrolled at least half-time at some point during the tax year.
To claim the AOTC, you must file a federal income tax return with a completed Form 8863 attached to your Form 1040 or Form 1040A.