When it comes to filing taxes, many people assume that it’s only necessary when they have a job and earn income. However, even if you have zero income, there are still circumstances where you may need to file taxes.
Why File Taxes with Zero Income?
There are several reasons why you might need to file taxes even if you didn’t earn any income during the year. Here are some of the most common scenarios:
- Refundable tax credits: The IRS offers several refundable tax credits that you might be eligible for, even if you didn’t earn any income. For example, the Earned Income Tax Credit (EITC) is a benefit for working people with low to moderate income. If you qualify, you could receive a refund even if you don’t owe any tax. Similarly, the Additional Child Tax Credit (ACTC) is a refundable credit that you may receive if you have at least one qualifying child and you didn’t get the full amount of the Child Tax Credit. In 2023, the maximum amount of EITC that you could claim is $6,728 if you have three or more qualifying children.
- State tax refunds: If you received a state tax refund in the previous year and you itemized deductions on that year’s federal tax return, a portion of your state refund might be taxable in the current year. For example, if you received a $1,000 state tax refund in 2022 and you itemized deductions on your 2022 federal tax return, you might need to include some or all of the $1,000 as income on your 2023 federal tax return.
- Self-employed individuals: If you started a self-employment activity during the year, such as freelancing or gig work, you would need to report your earnings regardless of the amount. For example, if you started a freelance writing business in 2023 and you earned $500, you would need to report the $500 as income on your 2023 tax return, even if that was your only income for the year.
How Do You File Taxes with Zero Income?
Filing taxes when you have zero income is typically done by submitting an IRS Form 1040 along with any other required forms. Here are some tips on how to do this:
- Determine your filing status: Your filing status is based on your marital status and family situation. The five filing statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. Your filing status can affect the amount of tax you owe, and it can determine whether you must file a tax return.
- Claim refundable tax credits: If you’re eligible for the EITC or the ACTC, you can claim these credits by filling out Schedule EIC or Schedule 8812 and attaching it to your Form 1040. For example, if you’re claiming the EITC and you have one qualifying child, you could receive a credit of up to $3,618 in 2023.
- File your state tax returns: Each state has its own rules for filing state tax returns. Check with your state’s revenue department to find out if you need to file a state tax return. For example, in California, you must file a state tax return if your gross income is above a certain amount, even if your gross income is from sources outside California.
- File your federal tax return: After you’ve filled out your Form 1040 and any other required forms, you can file your federal tax return. You can file your return by mail or you can e-file your return. The IRS recommends e-filing because it’s faster, more accurate, and more secure than filing by mail.
Common Mistakes to Avoid
When filing taxes with zero income, there are a few common mistakes that you should avoid:
- Not filing a tax return because you think you don’t need to: Even if you didn’t earn any income, you might still need to file a tax return to claim a refundable tax credit or to report a state tax refund from the previous year.
- Not claiming all the refundable tax credits you’re eligible for: If you’re eligible for the EITC or the ACTC, make sure to claim these credits on your tax return. You could receive a refund even if you don’t owe any tax.
- Not reporting all your income: If you earned any income during the year, make sure to report it on your tax return. This includes income from self-employment, interest, dividends, and other sources.
Here are some best practices for filing taxes with zero income:
- Check if you need to file a tax return: Even if you didn’t earn any income, you might still need to file a tax return. Check with the IRS or a tax professional to find out if you need to file.
- Claim all the refundable tax credits you’re eligible for: If you’re eligible for any refundable tax credits, make sure to claim them on your tax return. You could receive a refund even if you don’t owe any tax.
- File your tax return on time: The deadline to file your federal tax return is usually April 15. If you need more time to file, you can request an extension, but you must still pay any tax you owe by the original deadline to avoid penalties and interest.
- Keep records of your income and expenses: Even if you didn’t earn any income, it’s a good idea to keep records of your financial transactions. This can help you prepare your tax return and it can be useful if the IRS ever audits your return.
In conclusion, filing taxes with zero income is not only possible but sometimes necessary for certain individuals. Understanding why and how to file can help you avoid issues with the IRS or even getting a refund that he/she might be eligible to get otherwise.