Why you should file taxes even if you don’t owe anything

Tax season is coming: feel fear, confusion, and mentally prepare to part with some of your money.

At least that’s how many people think about taxes.

But in recent years, especially after the payouts associated with the pandemic and rising gas prices in California, filing a tax return has also become key to receiving Money.

Adam Kuhn learned this the hard way. His wife, a contract worker, lost all her jobs at the start of the pandemic. She received some unemployment benefits, but even with Adam working as a software instructor, the couple’s earnings in 2020 were low enough that they didn’t pay taxes. “So why should we worry? said Kuhn, a Sacramento resident. They didn’t bother.

Then, in 2021, California began sending out its own pandemic stimulus payments that reached $1,200. You must have filed a 2020 tax return to receive payments. The state made a second round of payments at the end of 2021, also subject to a 2020 return.

In 2022, with gas prices skyrocketing and the budget running a huge surplus, state lawmakers decided to send out another round of payments to help with rising costs of living – again linked to 2020 tax returns.

“I wish I could file taxes, especially because, you know, filing taxes isn’t that hard, especially when you don’t owe anything,” Kuhn said. “We’re doing fine for two people with no kids, but we certainly don’t make a ton of money,” they said. In 2020, they delayed rent several times, but thankfully their landlord was “merciful,” Kuhn said. If they received a portion of these payments, they would probably spend the money on food, they said.

This is a recurring issue. One of the main ways California helps people financially and redistributes wealth is through the transfer of money through the tax system. These are not just one-time pandemic payments; there are also annual payments called refundable tax credits that provide thousands of dollars to low-income people through the tax system.

But some people who qualify for these programs earn little enough to avoid paying taxes. Therefore, many do not file a tax return. And if they don’t file the paperwork, they won’t be able to collect what is essentially free money on the table.

“The best thing to do is file a tax return because there could be things like stimulus payments or [gas payments] we can’t foresee that,” said Anna Hasselblad, director of public policy for United Ways of California, a network of dozens of organizations across the state that provide free tax reporting, among other things.

This is especially true for any Californian making less than $30,000, Hasselblad said, because they are likely eligible for a tax credit refund.

The official position of the State Franchise Tax Board is essentially the same: filing tax returns, even if you don’t owe them, can be beneficial because it potentially allows you to receive tax refunds, payments through tax credits, if you qualify. , as well as potential future one-time payments such as pandemic response packages. You can file a state income tax return even if you don’t have income from work – this includes seniors living off Social Security, IRS spokesman Andrew LePage wrote in an email.

One caveat: the high fees charged by paid tax agents can make the compromise between filing a tax return if you owe nothing not worth it. But many people qualify for free individual tax preparation through the IRS program—more on that later.

Kim Kaufman, a retiree from Los Angeles, has not paid taxes in California for several years; she paid for her house years ago, she said, and the state doesn’t tax the Social Security checks she receives.

When she heard about the gas payments and found out they were based on 2020 tax returns, “I was like, ‘Oh shit. I could use that money,” Kaufman said. This would reduce her property tax and home insurance bills.

She plans to file a declaration this year, “in case something like this happens again,” she said.

“I will do it early. I’m not going to wait until April.

According to Elizabeth Linos, a professor of public policy at Harvard who has studied how people interact with the tax system, more and more relief programs come in the form of tax-based benefits. “We see that people will miss out on benefits if they don’t pay taxes.”

“It’s your money, go get it”

California’s largest cash-back credit for low-wage earners is CalEITC, or the state’s earned income tax credit. This loan alone can return up to $3,417 in cash back to taxpayers, and when combined with a federal loan, the amount could rise. There is also a federal cashback loan for people with children under 17 and another loan in California for families with children under 6.

So, for example, if you’re a single parent in California and make $25,000 with two kids under age 6, you could get $9,990 when you file your tax return in 2023, according to data provided by the Center for Budget and Policy. California.

“We love to say, ‘It’s your money, go get it,'” United Ways of California’s Hasselblad said. “And to go and get it also means to ask for help if you need it.”

Despite all the money on the table, many people don’t register their taxes and miss out. It is difficult to say exactly how many people are in this group. According to the US Department of Health and Human Services, nationally, about a fifth of people who qualify for a federal earned income tax credit do not receive it. When researchers studied California households receiving food assistance and are eligible for the CalEITC loan, they found that about 400,000 households that were eligible for the loan did not receive it, largely because low-income families do not file taxes.

It’s hard to convince people that they should file a tax return even if they know they can get their money back. In 2020, Berkeley researchers teamed up with California state agencies to find out if small “nudges,” including sending text messages and tax credit letters to 1 million people, target people who are likely eligible but may not. claim a benefit. , will increase the feed. The pushes had no effect.

Another approach has been somewhat more successful. The researchers reached out to households via email and voice messages, explaining that they could receive stimulus payments and directing them to Code for America’s simplified application tool, but the biggest increase was from just 0.43% to 2.4%. %.

California saw a surge in low-income tax returns in 2020, which the state’s Franchise Tax Department attributed to pandemic-related factors. In 2021, the number of tax returns from individuals or households with incomes under $30,000 has dropped again.

Trying to simplify the file

This summer, the State Franchise Tax Board plans to send letters to two groups of Californians.

For people who filed their 2022 return on time and appear to be eligible for the CalEITC program but did not apply for a loan, the tax board will inform them of the loan and allow them to complete only one form to apply for it. People who recently worked and filed taxes but missed 2021 may receive a letter explaining how much money they can claim, as well as how to get free help filing.

Illinois has launched a promising pilot project with a different approach: sending people already filled out forms. The state has sent tens of thousands of letters to people who have filed a federal income tax return and claimed a federal income tax credit, but who did not have filed an Illinois tax return. These people received letters explaining that they might be eligible for an Illinois tax credit, as well as a form with tax information already filled out that they could check for accuracy. Recipients could simply sign the letter and send it back, or take a photo of the signed letter and email it to the Illinois Department of Revenue. Nearly half responded and received a refund in the first year of the pilot project.

“I don’t understand why – if the IRS and the California tax office know in general terms how much I owe at all, and whether I owe anything at all – why don’t they just send me a letter?” Kuhn, a Sacramento resident said. “Why go through Intuit or, well, Turbo Tax or something?”

Getting free tax help

One of the main reasons people don’t file tax returns is because taxes are hard.

“It’s too hard, it’s too hard, and there’s a lot of fear around, you know, doing something wrong,” said Teri Olle, campaign director in California for the Economic Security Project, a human rights organization. “We, as a country and as a state, do not do this automatically, as many other countries do,” she said.

But there is a network of over 100 sites throughout California that offer free tax preparation. Assistance is provided by trained volunteers and the program is partially funded by the IRS. Typically, this is for people making $60,000 or less, people with limited English proficiency, and people with disabilities; California has a search tool to find the site closest to you, and many sites offer multiple languages.

Anna Perez runs the United Way of Kern County free tax preparation program, which typically operates in 10 county offices during the tax season. People who visit the site typically sign up, speak with a volunteer who asks them questions about their situation and collect documents, and then that information is passed on to another tax-preparing volunteer, Perez said. come back. Then the declaration will be cross-checked by another volunteer, reviewed by the visiting client, and then the declaration will be submitted – and all this is free. The entire process typically takes 45 minutes to an hour, Perez said.

There are also places that provide free tax help specifically for people over 60. And if you want to file on your own, the Franchise Tax Board recommends some free online tools.

“The bottom line is that many Californians are eligible for tax credits,” Hasselblad said, “and none of them need to pay an IRS to get these credits.”

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