Why you should file taxes even if you don’t owe any
Tax season approaches: Cue dread, confusion, and mentally preparing to part with a chunk of your money.
At least, that’s how many people think of taxes.
But in recent years, especially after payments related to the pandemic and rising gas prices in California, submitting a tax return has also become key to receiving money.
Adam Kuhn learned this the hard way. His wife, who is a contractor, lost all of her work early in the pandemic. She received some unemployment benefits, but even with Adam’s work as a software trainer, the couple’s earnings in 2020 were low enough that they didn’t owe taxes. “So why would we bother?” Kuhn, a Sacramento resident, said. They didn’t bother.
Then, in 2021, California started sending out its own pandemic stimulus payments, which reached up to $1,200. To get the payments, you had to have filed a 2020 tax return. The state did a second round of payments in late 2021, also predicated on having filed a 2020 return.
In 2022, with gas prices soaring and a massive budget surplus on their hands, state lawmakers decided to send out another round of payments to help with the rising cost of living — again tied to 2020 tax returns.
“I wish I had filed taxes especially because, you know, it’s not that much trouble to file taxes, and especially when you don’t owe anything,” said Kuhn. “We do okay for two people with no kids, but we certainly don’t make a ton of money,” they said. They were late on their rent several times in 2020, but luckily their landlord was “gracious” about it, Kuhn said. If they had received some of those payments, they said, the couple probably would have spent the money on food.
It’s a recurring problem. One of the main ways California helps people financially — and redistributes wealth — is by passing money through the tax system. It’s not just one-time pandemic payments; there are also yearly payments, called refundable tax credits, that provide thousands of dollars to lower-income people through the tax system.
But some of the people eligible for those programs earn little enough that they don’t owe any taxes. So, many don’t file a tax return. And if they don’t file, they can’t collect what is essentially free money on the table.
“Your best bet is to file your taxes, because there may be things like stimulus payments or the that we can’t anticipate,” said Anna Hasselblad, director of public policy at United Ways of California, a network for dozens of organizations across the state which, among other things, provide free tax prep.
That’s especially true for any Californian earning less than $30,000, Hasselblad said, because they are likely eligible for cash back, in the form of a tax credit.
The official line, from the state’s Franchise Tax Board, is essentially the same: Filing your taxes, even if you don’t owe any, can be beneficial, because it allows you to potentially get tax refunds, payments via tax credits if you qualify, and potential future one-time payments like the pandemic stimulus packages. You can file a state tax return even if you have no income from work — this includes seniors living off of Social Security — wrote tax board spokesperson Andrew LePage in an email.
One caveat: High fees charged by paid tax preparers might make the tradeoff of filing taxes if you don’t owe any not worth it. But many people qualify for free, individualized tax prep through an IRS program — more on that later.
Kim Kaufman, a retiree in Los Angeles, hasn’t paid California taxes for several years; she paid off her house a handful of years ago, she said, and the state doesn’t tax the Social Security checks she receives.
When she heard about the gas payments and learned they were based on 2020 tax returns, “I thought ‘Well, shit. I could’ve used that money,’” Kaufman said. It would have chipped away at her property tax and home insurance bills.
She plans to file a return this year, “in case something like this comes up again,” she said.
“I’ll do it early. I’m not gonna wait until, you know, April.”
More and more aid programs are being delivered as tax-based benefits, said Elizabeth Linos, a public policy professor at Harvard who has studied how people interact with the tax system. “What we’re seeing is that people will be missing out on benefits if they’re not filing their taxes.”
“It’s your money, go get it”
California’s biggest cash back credit for low-wage people is CalEITC, or the state’s earned income tax credit. That credit alone can give tax filers as much as $3,417 cash back, and combined with the federal credit, the sum can grow larger. There’s also federal cash-back credit for people with kids under 17, and another California credit for families with kids under 6.
So, for example, if you’re a single parent in California making $25,000 with two kids under 6, you could receive $9,990 when you file your taxes in 2023, according to figures provided by the California Budget and Policy Center.
“We like to say, ‘It’s your money, go get it,’” said Hasselblad, with United Ways of California. “And going and getting it means also: Ask for help if you need it.”
Despite all the money on the table, lots of people don’t file their taxes and miss out. It’s difficult to know exactly how many people are in this group. Nationally, about one fifth of the people who are eligible for the federal earned income tax credit don’t receive it, according to the U.S. Department of Health and Human Services. When researchers looked at California households who receive food assistance and are eligible for CalEITC, they found that about 400,000 households that qualified for credit didn’t receive it, largely due to low-income families not filing taxes.
It’s hard to convince people they should file a tax return even if they know they could get cash back. In 2020, Berkeley researchers partnered with California state agencies to research whether small “nudges” — including sending text messages and letters with information about the tax credits to 1 million people — aimed at people who were probably eligible, but who might not claim the benefit, would increase filing. The nudges had no effect.