The Internal Revenue Service provides taxpayers with children with a number of opportunities to save on their tax bills in ways that generally aren’t available to childless filers. Some of these benefits, such as the additional child tax credit, can get you a refund even if you didn't work and have no income to report. You can file a tax return even without income for the sole purpose of taking a tax credit and claiming a refund.
Taxation of Disability and Unemployment Benefits
If you've lost your job and are receiving unemployment insurance benefits, these payments are fully taxable and must be reported as income on your tax return. If you're suffering from a disability that prevents you from working, your disability benefit payments may be taxable. Payments you receive from an insurance policy that your current or former employer pays the premiums for are fully taxable as well. Most other types of disability pensions that are earned through military service or paid out by the government, such a Social Security Disability Income, aren’t taxable.
The bottom line is that just because you don't have a job, it doesn't necessarily mean that you didn't earn taxable income making the filing of a return necessary.
Claiming the Refundable Additional Child Tax Credit
The IRS lets you take a child tax credit for each child you claim as a dependent. The child must be under the age of 17 and live with you for more than half of the tax year. The credit can reduce your tax bill by a maximum of $1,000 for each child as of 2016. This credit isn't refundable so all it can do is eliminate any tax you might owe the IRS.
You can claim the additional child tax credit instead if you don't owe any taxes. Unlike the regular credit, the additional child tax credit is refundable so you can get a refund in the amount of the credit even if you have no tax bill to offset. In other words, if you owe zero in tax and you’re eligible to take a $400 credit, the IRS will send you a $400 check or direct deposit the money into your bank account if you elect this option.
Other Refundable Tax Credits
You also can get a tax refund by taking the American Opportunity credit or the premium tax credit. The American opportunity credit lowers your tax bill for a portion of expenses you pay to send your kids to school to pursue a degree or other recognized credential. This credit is available through tax year 2017, but only 40 percent of the credit is refundable. This means that if you’re eligible to take a $2,000 credit but you have no taxable income to report on your return, only $800 of it – or $2,000 x 40 percent – will be refunded to you.
If you obtain health insurance coverage for your kids through the Health Insurance Marketplace, you may be eligible for the premium tax credit, an income-based subsidy the government contributes towards your premium costs. The
Given the various opportunities that unemployed parents have to obtain refunds for taxes they never paid, you shouldn’t let the fact that you didn’t work deter you from filing a tax return.