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Why you should file a tax return, even if you don't need to

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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 can make sense to file one anyway, even if you don't technically need to. That's because there could be cash owed to you by the Internal Revenue Service, especially if you have dependents.

It could come from two sources: reclaiming taxes you've already overpaid for, or by claiming tax credits that you're entitled to, including money from the third stimulus check if you haven't already received it.

The first is a refund for taxes you don't actually owe: Single taxpayers under 65 earning less than $12,550 don't have to pay income tax on their earnings, nor do joint filers under 65 who earned less than $25,100. But if you made less than these amounts in 2021 and taxes were withheld by an employer — say, for a full-time job you held for a couple months in 2021 — you could be owed a refund.

Refundable tax credits can also be extremely valuable for people who don't normally file a tax return, since they can be paid out in cash even if you don't owe anything in 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 worth up to $6,728 for low- and moderate-income workers. The credit amount is based on how many children you claim — up to three or more — although you can still file if you have no children. In the case of no qualifying children being claimed, the payout is $1,502.

To receive this credit, your qualifying adjusted gross income (AGI) has to be below certain thresholds, based on how many qualifying children you are claiming. But you don't have to worry about that if you don't earn enough to justify a tax return; your AGI is low enough to qualify for the full credit, whether you have kids or not.

There are some other eligibility requirements, too, but your best bet is using the IRS' EITC Assistant to determine whether you qualify. The claim for this credit is made in your tax return using the Schedule EIC.

2. The 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 qualifying children under 6 and $3,000 for children under 18.

For the 2021 tax year, you get the full per-child credit if your AGI is under $75,000 for single filers, $112,500 for heads of household and $150,000 for those married filing jointly. The amount of the credit begins to phase out beyond these AGI thresholds, stopping completely at $220,000 and $440,000, for single and joint filers, respectively.

This credit is unusual in that most qualifying taxpayers have already received half the credit as monthly advance payments, sent from July through December 2021. The other half of that amount —  or the full amount, if you never received monthly payments  — can be claimed using Schedule 8812 in your 2021 federal tax return.

3. The recovery rebate credit for missing stimulus check payments

As part of economic stimulus bills related to the pandemic, most Americans received three stimulus checks, otherwise known as Economic Impact Payments, in 2020 and 2021. The third payment was up to $1,400 per adult, plus $1,400 per child or adult dependent.

The first two checks can no longer be claimed, but if you didn't receive the third one in 2021, or are owed more than you received, you can still claim the funds as a "Recovery Rebate Credit" in your 2021 federal tax return. While some income requirements apply, you're entitled to the full amount if you made less than $75,000 as a single filer or $150,000 as a joint filer.

For more on calculating the amount of the rebate and how to claim it, check out this IRS webpage.

4. The child and dependent care credit  

This credit covers some of the costs associated with caring for a child or dependent with disabilities, including after-school programs, babysitters or daycare, if that care enabled 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 qualifying person and $16,000 for two or more.

The exact credit amount you might qualify for depends on a few factors, including income. To find out what you might be owed, use this IRS tool. The claim for this credit is made using Form 2441.

5. The American opportunity tax credit 

This credit covers up to $2,500 for qualified college expenses and is partially refundable. If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit, up to $1,000, refunded to you.

To be eligible for the AOTC, students must be within their first four years of higher education and be enrolled at least half time at some point during the tax year.

To claim the AOTC, you must file a federal tax return with a completed Form 8863 attached to your Form 1040 or Form 1040A.

6. The premium tax credit

If your income is between 100% and 400% of the federal poverty line, the PTC will reimburse the amount you spent on monthly premiums for health insurance purchased through the Health Insurance Marketplace.

These federal poverty line thresholds are actually higher than the minimum amount needed to file a tax return. However, if you received unemployment compensation for any week beginning during 2021, your household income is automatically considered to be 133% of the federal poverty line and therefore qualifies you for the credit.

To claim it, you must file a federal income tax return and attach Form 8962. More information about claiming this credit can be found here.

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