The point of a tax refund is for the government to return some of the money that you have overpaid. When you receive a tax refund, it means that you have paid more money than you actually owe. One of the most common reasons that a taxpayer receives a tax refund is because extra money has been withheld from their paycheck. Additionally, tax deductions and credits can also lower your tax liability and result in a situation in which you are entitled to a refund.
However, what happens if you don’t have to have money withheld from your paycheck? Can you still get a tax refund if you are considered exempt?
What Qualifies You as Exempt?
When you fill out your W-4 from your employer, you add your withholding allowances. Normally, there is a standard deduction (In 2018, it’s $12,000 for single, $24,000 married filing jointly). If your income is less than your standard deduction, then you are exempt – you don’t have to pay taxes.
However, if you had any tax liability at all in the previous year, or you expect to owe for the current year, you can’t be considered exempt. Those who are exempt, though, won’t have taxes taken from their paychecks. And, normally, since you didn’t pay taxes, you aren’t eligible for a tax refund. But there are conditions that can result in being able to receive a tax refund, even if you are exempt from paying taxes.
Refundable Tax Credits
Even if you are exempt, you can still receive a tax refund if you qualify for a refundable tax credit. Some tax credits are only applied up to the point that you zero out the taxes owed. Refundable tax credits, on the other hand, can result in cash back. These are tax credits that can create negative tax liability resulting in a tax refund, even if you haven’t paid taxes.
One of the most common refundable tax credits is the Earned Income Tax Credit. This is a tax credit you receive for working and earning low to moderate income. If you have earned any income at all, even if you are exempt, you can claim this credit if you qualify. And, it can result in receiving a tax refund – even if you didn’t have taxes withheld from your paycheck.
Another popular credit is the American Opportunity Credit. This education credit is available to help offset certain costs of higher education and is 40 percent refundable.
Before you think that you won’t get any back from the government, double check your eligibility for refundable tax credits. There are instances where even being exempt from paying taxes can still result in a tax refund, but you won’t get your money unless you file a tax return.
Don’t worry about knowing these tax rules. TurboTax will ask simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years’ experience to get your tax questions answered from the comfort of your home. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.