Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Refundable Tax Credits

Posted by taxguru on February 14, 2009

Q:

hey i was looking at your tax website and have a quick question…
 
hopefully you can give me a non-committal answer without alot of research.
 
have you ever heard of a situation where someone with no income can qualify for a tx refund, even though theyve paid nothing in?
 
for example an unwed mother living with her parents: she hasn’t worked, yet wouldnt she qualify for some type of credits taking care of a newborn? and if so, those credits applied to her tax liability, but no actual liability as there was no income, does that soemhow turn into a credit & subsequent refund?
 
any suggestions would be appreciated, even if its just steering us where to research further. Again, not looking for legal tax advice, I’ve just never heard of someone getting a tax refund without paying any taxes in through the year.

 

A:

While you are correct that most tax credits are non-refundable, meaning they can zero out the taxes, but not create an actual refund to tax return filers, there are an increasing number of actual refundable credits that allow people to receive money even if they hadn’t paid anything in.  The largest is the Earned Income Credit (EIC), often generating refunds  of thousands of dollars in “free” money for the filers.

If our new President gets his way, there will be even more of those kind  of credits, which some people are calling welfare.

Most of these credits don’t apply to people who are being claimed s dependents on someone else’s return, so your friend probably wouldn’t qualify for a refund if her parents are showing her and/or her child as dependents.  However, it wouldn’t hurt to have a professional tax advisor look at her particular situation to see if filing a 1040 makes sense.

I hope this helps.

Kerry Kerstetter

 

 

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