Get. Cash. Back.
Whether you pay taxes happily (who pays taxes happily??) or just cause you have to, it can help to know how you benefit from paying. Here are some of the biggest ways you could gain from paying your taxes each year:
1. Get a tax refund
You might be owed money back from the government! If you overpaid your taxes during the year, the IRS will owe you a refund, or a reimbursement, for the extra amount you paid. In 2020, the IRS returned more than $736 billion in tax refunds (including stimulus money)!
P.s. How do you overpay your taxes? One of the main ways this happens is if your employer withholds too much money from your paychecks to cover your tax bill. Regardless of the reason, the bottom line is that if you don't file your taxes, you won't get that money back.
2. Take advantage of new (and old) tax credits
Tax laws change every year, so it's nearly impossible to keep track of which new rules apply to you. (Trust us, we tried.) But when you file you may find major tax credits.
In some cases, tax credits not only lower your tax bill, but they're "fully refundable." That means if the tax credit amount is higher than your tax bill, you'll get the rest of the money paid out to you!
For example, if you qualify for a fully refundable tax credit worth $1,000, and your tax bill is $700, the credit will be applied to your bill and the IRS will send you the remaining $300. That’s cash you can use however you want.
3. Increase your social security income
Counting on social security? How much you get is calculated as a percentage of your pre-retirement income. And you won’t be able to get Social Security if you’ve never paid Social Security taxes.
On average, most people get about 40% of their pre-retirement income from Social Security, so the more earnings you report now, the higher your payments will be in the future.
Seems like there’s a lot of cash you could be leaving a lot on the table. You’ll only know when you file. So go ahead and file and get your refund today.
Sarah Brady is a personal finance writer and credit expert with nine years of experience helping individuals and entrepreneurs improve their financial wellness. Sarah writes advice articles for Experian, Investopedia and LendingTree, and she's been published by Credit Karma and syndicated by Yahoo! News and MSN. She is a former educator and counselor for the City of San Francisco's affordable home buying programs, as well as a former HUD-Certified Housing Counselor and NFCC-Certified Credit Counselor. Sarah can be contacted at sarahcbrady.com.
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