Should taxpayers with income slightly below the IRS filing threshold file a return anyway?
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Yes, taxpayers with income slightly below the IRS filing threshold should strongly consider filing a tax return, even though they are not strictly required to do so. There are several important reasons for this, grounded in both IRS guidance and the Internal Revenue Code:
1. Potential Refunds and Tax Credits
- Refundable Credits: Many tax credits are refundable, meaning you can receive a refund even if you owe no tax. For example, the Earned Income Tax Credit (EITC), the Additional Child Tax Credit (ACTC), the American Opportunity Credit (partially refundable), and the Premium Tax Credit all require you to file a return to claim them. If you do not file, you forfeit any refund you might be entitled to, even if you had no tax liability.
- Withholding Refunds: If you had any federal income tax withheld from your pay, you must file a return to get a refund, regardless of your income level.
2. Access to Other Benefits
- Establishing Income Records: Filing a return creates an official record of your income, which can be important for loan applications, government assistance, or Social Security benefits calculations.
- Protecting Against Identity Theft: Filing a return, even with no tax due, can help prevent others from fraudulently filing in your name and claiming a refund.
3. Avoiding Penalties and Future Issues
- Self-Employment and Other Special Situations: If you have self-employment income of $400 or more, you must file regardless of your total income. Failing to file when required can result in penalties and interest.
- Advance Premium Tax Credit Reconciliation: If you received advance payments of the Premium Tax Credit for health insurance, you must file a return to reconcile those payments, even if your income is below the threshold.
4. No Penalty for Filing When Not Required
- There is no penalty for filing a return when you are not required to do so. In fact, the IRS encourages filing in order to claim any credits or refunds due.
5. Examples of When Filing Below the Threshold Is Beneficial
- Earned Income Tax Credit (EITC): Even if your income is below the filing threshold, you may qualify for the EITC if you have earned income and meet other requirements. The maximum EITC for 2024 is $7,430 for families with three or more qualifying children.
- Child Tax Credit (CTC): Up to $2,000 per qualifying child, with up to $1,500 refundable as the ACTC, is available to those who file, even with no income.
- American Opportunity Credit: Up to $2,500 per eligible student, with 40% refundable, is available for qualified education expenses.
6. IRS Guidance
- The IRS explicitly states that people may want to file even if they make less than the filing threshold because they may get money back, especially if they qualify for refundable credits or had tax withheld.
Conclusion
While you are not legally required to file if your income is below the threshold, it is often in your best financial interest to do so. Filing ensures you do not miss out on valuable credits and refunds, helps establish an official income record, and protects you from potential future complications. The process is straightforward, and there is no penalty for filing when not required.
In summary: Taxpayers with income slightly below the IRS filing threshold should file a return if they want to claim refundable credits, receive a refund of withheld taxes, or establish an official income record. Filing is safe, can provide financial benefits, and is encouraged by the IRS.
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