Can You Receive a Tax Credit if You Do Not Pay Taxes?
In 2009, two of the largest companies in the United States---General Electric and Bank of America---paid no taxes, but still received money back due to tax credits. Individual taxpayers can receive money back from the government through tax credits too. Whether it makes sense to bother claiming a credit when you have zero tax liability depends on the type of claim.
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Identification
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You can receive a tax credit even if you have no tax obligation as long as you file. Only refundable tax credits can mean the IRS must pay you. Most tax credits, however, are nonrefundable, so they only reduce tax liability, according to BankRate. One of the most important refundable tax credits is the Earned Income Credit for low-wage earners.
Other Important Credits
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Citizens may have no tax obligation even if they have a job. If your employer withholds federal taxes for you, you can get these back when you file your taxes. In 2010, taxpayers can claim up to $400---$800 for joint filing---for the Making Work Pay Credit. Students can also claim up to $2,500 for their undergrad expenses in 2010. If you signed a contract to purchase a home between 2009 and May 1, 2010, you can receive up to $8,000 under the First-Time Homebuyer Credit.
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A Common Situation
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Owing no taxes or having the federal government owe you money is very common. In 2010, 40.2 percent of all taxpayers owed nothing or had a negative tax balance because of tax credits, according to the Tax Policy Institute. This number is expected to decline to 32.7 percent by 2019.
Tip
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BankRate suggests taxpayers use IRS online tools to help them figure out if they can claim a refundable tax credit. Paying a tax professional to help claim a credit could end up costing money unless the credit is worth more than the tax preparer's services.
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References
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