The Less Obvious Reasons to File a Tax Return

Your Questions Answered: Timely personal finance inquiries, resolved

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The Balance is here to help you navigate your financial life. To that end, we track the money-related questions you most search on Google so we know what’s on your mind. Here are the answers to some of your most recent inquiries.

What is the benefit of filing a tax return if I don’t meet the minimum income requirement?

Because that may be the only way to receive thousands of dollars in payments from the government.

Most individuals under 65 who earn less than $12,400 aren’t required to file federal tax returns, but there are some very good reasons to fill out the paperwork, especially these days. The IRS distributes several important government benefits based on information from tax returns, including some created or expanded during the pandemic. The big-ticket benefits include:

  • A child tax credit, which in 2021 is worth up to $3,600 rather than $2,000 per child, depending on the age of the child and the income of the family. While claiming this credit always required filing a tax return, this year the stakes are much higher: Those who didn’t make enough to qualify for a full tax offset in past years now qualify regardless of how little they earn. 
  • An earned income tax credit for workers, part of one of the largest federal anti-poverty programs. A pandemic relief bill temporarily expanded the credit, boosting the maximum benefit for childless workers to $1,502 from $543, and making the income cutoff higher. 
  • Pandemic-era stimulus checks: one for up to $1,200 per person, a second for as much as $600, and a third for a maximum of $1,400. 

While the deadline to file 2020 taxes is long past, it’s not too late to claim these tax credits and collect stimulus payments. Luckily, there is no late-filing penalty for taxpayers who do not owe taxes. You can use an online service like the IRS free file program or fill out and mail in a tax return form.

Claiming the earned income tax credit requires filing a federal tax return. People who never got the stimulus checks and who never filed a 2020 tax return can get the first two payments by filing a return and claiming the 2020 recovery rebate. To receive the 2021 child tax credit—including the half of it that’s being delivered in advance, as monthly payments this year—you can either file a tax return for the 2020 tax year, or sign up for the payments with a special website.

-Diccon Hyatt

Does auto insurance cover flood damage?

If you have what’s called comprehensive auto coverage, yes it does. (And let’s hope you do if your car is one of the 212,000 Carfax estimates may have been damaged by Hurricane Ida in Louisiana, New York, and New Jersey.) 

Comprehensive coverage insures against things that happen when you aren’t driving your car, like theft, hail, or—yep—water damage. It is an optional addition to your auto insurance. About 78% of insured drivers add comprehensive coverage to their policy, according to an Insurance Information Institute analysis, and many lenders require it if you’re financing or leasing your car.

Other types of coverage won’t protect you from flood damage. Collision insurance only covers damage when your car collides with objects or other cars, for example. And flood insurance for your home doesn’t cover motor vehicles. Keep in mind, though, that even if you do have comprehensive coverage, you’ll most likely have to pay a deductible first.

Without comprehensive coverage, you’ll have to pay to replace any damage the flood causes to your vehicle. (Unless, that is, the flood damage occurs during a declared emergency—in that case, the federal government may or may not be able to help. Enter your zip code on this government website,, to see if you may qualify for Federal Emergency Management Agency aid.)

-Rob Anthes

What is the penalty for cashing out your 401(k) early?

Now that pandemic relief measures are over, it’s pretty stiff. 

If you take money out of your 401(k) account before age 59½, in general you’re going to have to pay an early withdrawal penalty of 10%—plus income tax—on the dough. Once you turn 59½, you can withdraw from your account without having to pay the penalty, though the amount you take out will still be taxed. 

There are a few exceptions to the 10% penalty rule, including when you leave or lose your job at age 55 or older. And, of course, there are special circumstances. Last year the CARES Act passed by Congress temporarily nixed the 10% penalty for up to $100,000 withdrawn by those impacted by the coronavirus pandemic. (Though again, the money remained taxable). 

-Glenn Hunter

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  1. Intuit Turbotax. “Does Everyone Need to File a Tax Return?

  2. IRS. IRS sending letters to more than 36 million families who may qualify for monthly Child Tax Credits; payments start July 15.”

  3. IRS. “Earned Income Tax Credit and Other Refundable Tax Credits.”

  4. Turbotax. "Filing Your Taxes Late."

  5. Carfax. "CARFAX: As Many As 212,000 Vehicles Damaged By Hurricane Ida."

  6. Insurance Information Institute. "Facts + Statistics: Auto insurance."

  7. Progressive. "Flood Insurance 101."

  8. FEMA. "Assistance for Housing and Other Needs."

  9. IRS. "Retirement Topics - Exceptions to Tax on Early Distributions."

  10. IRS. "Coronavirus Relief for Retirement Plans and IRAs."

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