Assuming a person has 0 income from any source is there any benefit to filing a tax return?
I know the IRS says not to, but I was wondering if there was any benefit aside from the fact years of back returns can assist with certain help like welfare.
*I got into an argument with someone who claimed you should always file even with no income because you still qualify for refunds, like the IRS will send you a check just for filing with a child or something. That didn’t sound right to me.
Assuming we’re talking about the US: it can certainly be to your benefit to file if you even have $1 of earned income, as then you qualify for the Earned Income Tax Credit. However, you do need to have at least some earned income to qualify for this (that’s why it’s called the “Earned Income” credit. One-time credits like the “Making America Work” credit we had a few years back were also dependent on the individual actually earning income.
There are also refundable tax credits for things like education, buying a house, or adopting a child. But I would guess that the number of people who could claim these and simultaneously have zero gross income on their 1040 is minuscule.
You didn’t ask but I’m telling you anyways: under Canadian tax law, there are certain non-refundable credits that can be carried over from year to year; but you have to file to “roll them over.” So it can be to your advantage to file on a yearly basis even if you don’t earn any income in Canada, because the non-refundable credits can be claimed against future income. I’m unaware of any such credits in the US system, though.
It’s not “right” but it’s correct. Just another level of welfare. Look into the EIC. You will need to show at least some trivial income. I’m sure you did something for somebody during the year, riiight?
The other reason to file (in addition to what you suggested) is that it starts the clock ticking for how much time they have left to come after you.
Hm ignorance fought thanks! I had assumed deductions and credits applied towards your tax liability.
This is a “refundable credit” so you can get a refund. Special case.
Leaving out the political aspects:
Most deductions and credits do apply towards your tax liability, so don’t do you any good if you have no tax liability. But there are a few which can credit more back to you than your tax liability. These are called refundable tax credits. The most important of these is the Earned Income Tax Credit, which does require some (small) amount of earned income, but there are some others as well.
Another relatively new refundable credit is part of the 2009 Obamalove package: a refundable credit of 25% of the college tuition you paid for yourself or a dependent. This maxes out at $1000.
There have been similar tuition tax breaks but the difference here is that the prior benefits were tax deductions, so they didn’t do you any good if you had no tax liability anyway. The real help, then, was for the self-supporting student who had a part-time minimum wage job and never made it past the threshold ($6,500?) where he would begin to owe federal income tax, or for the family that sent him to college and is paying for his tuition.
Besides credits or refunds, the reason to file is to start the statute of limitations. If you file, the IRS has 3 years to audit you (6 if they assert a substantial problem).
If you don’t file, the IRS can audit or assess you on that tax year at any time in the future - you are never “off the hook” until it gets filed.
So let’s say that you forget to declare a small part of your income. Person A files a return every year. Person Bdoesn’t file because they think they don’t need to. This goes on for 10 years. When the IRS finally catches on in year 10, Person A will only be liable for tax/penalties on 3 years of returns. PersonB will be liable on all 10 years. (And if it’s a large part of the income? Well, Person A is still only liable for 6 years.)
Right, and this is why it is critical to file. The IRS, in actual usuage, almost never goes back more than 10 years, but if you don;t file, then they can presume quite a bit.
EOTC won;t amount to much if you didn;t earn much assuming you don;t have a kid.
Also, I think most dudes here are assuming that you are not claimed on someone elses return. I think that it is rather likely that you are.
In that case, file just to protect yourself.
If you do this with Colorado State Income Tax forms (even as a Colorado non-resident) you will find yourself owing Colorado $2 in taxes.
I’m not 100% sure that filing is necessary for this (so I would appreciate a correction from any resident experts), but if you have a “capital loss carryover” that you wish to preserve for a year when you *do *have income, that could be one reason to file a return for a year when you don’t.