Tax Filing May Be Smart Even If It’s Not Required

Not everyone needs to file a federal income tax return. Many students, seniors and low-wage workers simply don’t earn enough to have to file.

As the federal filing deadline nears, the thought of being able to skip that chore might come as a relief.

But you might want to file anyway -- even if you don’t have to.

Why? Each year, U.S. workers automatically pay billions of dollars in federal income tax through paycheck withholding. More than 1 million of them, however, don’t earn enough to have to pay any income tax. But if they don’t file tax returns, they can’t get a refund of the money that was withheld. And that can be a substantial sum.

The Internal Revenue Service recently announced that 1.7 million Americans had not yet filed their 2002 returns. The agency believes these people are owed more than $2 billion in refunds, with half the refunds topping $570. Some of the nonfilers could be owed considerably more because low-wage earners with dependent children can claim the earned income tax credit, a valuable break for the working poor.

The people most likely to have paid tax but not to have filed returns, experts say, are students with part-time jobs -- some of whom may erroneously believe that they can’t file returns because they’re claimed as dependents on their parents’ return. Also in the group are seniors who may not realize that tax is being withheld from some pension or investment earnings, and immigrant part-time workers who may not be familiar with the system.

For the 2005 tax year, unmarried people under 65 need to file a return only if their gross income exceeds $8,200. Those 65 and over don’t need to file unless their gross income is more than $9,450. The income thresholds for married couples are roughly twice as high, and a head of household -- that’s a single person with a qualified dependent -- isn’t required to file unless annual earnings top $10,500. (The threshold is $11,750 for heads of household who are 65 or over.)

Students who can be claimed dependents on a parent’s return don’t have to file unless their investment income exceeds $800 or their wages and other earned income exceed $5,000.

Yet if any of these people had tax withheld from their paychecks, they’d be wise to file.

“You don’t have a filing requirement because you don’t have a tax due,” explained Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based publisher of tax information. “But if you had withholding, you’ve paid tax. It’s worth your while to file a return to get your money back.”

On the bright side for such people, filing is simple and help is readily available. The IRS and AARP, formerly known as the American Assn. of Retired Persons, sponsor so-called Volunteer Income Tax Assistance programs in hundreds of locations nationwide.

At the program’s sites, tax professionals and trained volunteers fill out tax forms and sometimes file them electronically for seniors and those earning less than set amounts. Anyone who isn’t required to file a tax return qualifies for the low-income assistance, said Victor Omelczenko, an IRS spokesman in Los Angeles.

All the taxpayer needs to do is walk into a site with a W-2 form, which shows how much was earned and how much tax was withheld, plus any statements from banks or brokerages that would show how much the taxpayer received or paid in deductible expenses.

To find a Volunteer Income Tax Assistance site -- or find out what information is needed to file a return, go to the IRS website at www.irs.gov or call (800) 829-1040. All the help is free.

Taxpayers who have modest incomes and are Web-savvy have another option: They can file through the government’s online “free file” tax preparation service. The program has been revamped to provide free electronic filing to anyone earning $50,000 or less. Taxpayers simply go to the IRS site, click on “free file,” and choose from nearly two dozen options, including H&R; Block and TurboTax.

The return is sent electronically to the IRS. Taxpayers even have the option of having refunds deposited directly into their bank accounts, speeding payment.

It’s worth noting that taxpayers who haven’t had to file returns for years can go back and file past years’ returns. Refunds can be claimed for 2002, 2003 and 2004 by filing the appropriate tax forms. All the forms are available on the IRS website or by calling (800) TAX-FORM.

But any refund claim must be made within three years of the filing deadline for that return. In other words, 2002 refunds can be claimed only until April 17 of this year. After that, taxpayers forfeit the money.

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Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.