Most Americans know that if they earn above the minimum income required, they must file income tax forms. But should you file taxes even if your income was too low to make it mandatory? The answer may be yes, and here are five situations when it could behoove you to do so.
1. To Get Withholding Back
Anyone who worked at all during the year should check their W-2 at the end of the calendar year and note any federal withholding taken from paychecks and remitted to the IRS. State boxes identify money withheld for the state. If you had anything withheld but aren't subject to taxes, you may be able to request a refund through filing.
2. To Contribute to an IRA
An IRA, or individual retirement arrangement, allows you to contribute up to $6,000 per year to a retirement account. If you aren't subject to taxation for whatever reason, now is a good time to contribute to a Roth IRA because it will be tax-free when withdrawn at retirement. An income tax form documents the contribution so you don't end up subject to taxes later. You can also contribute to a traditional IRA.
3. To Qualify for Services
Some benefits and services require you to provide proof of income or information verification. Parents and students, for instance, often need to provide income tax forms to apply for student aid. You may also be called on to provide forms for food or housing assistance, medical services, immigration, and business credit. While other sources may work, an income tax form is often the easiest.
4. To Claim a Tax Credit
Before you write off filing income tax forms, determine if you could qualify for any tax credits based on a low income or other factors. For example, you can often access the refundable Child Tax Credits, education credits, Saver's credit, and Earned Income Credit despite earning below the minimum for taxation. Filing taxes also helps you get the Advance Premium Tax Credit for health insurance and the pandemic-era Recovery Rebate Credits.
5. To Protect Your Identity
Filing income tax forms can help protect you from identity theft. The IRS matches all relevant Social Security numbers to their database to root out errors and fraud. Therefore, filing your forms prevents anyone else from using your identity and ensures that no one else has already used your information.
Certainly, voluntarily filing income taxes can be a good investment. Whether you want to get a refundable credit, receive your own money back, or act proactively for your future, it's a simple task with many benefits. Learn more about how it may help you by meeting with a tax preparation service in your area, such as Hough & Co CPA.Share