Why does tax filing service say I owe no taxes?
April 15, 2021 7:55 PM   Subscribe

Just filed my taxes online. Typically I pay a few thousand dollars. But this year I owe nothing?

My financial circumstances changed this year (unemployment, less income), but I still had 1099s to file with the IRS, approximately $20k in contract work. I also collected unemployment this year.

I filed with a service called FreeTaxUSA, which a friend had used with no problem. (The filing program offered a standardized deduction of $12k and I said OK.)

I get to the end after filing all my 1099s, etc., expecting to pay the typical 12% or whatever to the IRS but ... it says I owe nothing? In fact, it says I should be getting a tax return! This is unheard of for me, as a contractor.

I checked all the information and the PDF of the return filed with the IRS. All the information is correct. I also filed the typical deductions for home office, etc. And I just got an email stating that IRS has accepted my tax return.

I've looked online to see if there are any special pandemic provisions but can't find anything.

Anyone have any idea what could be up? Or is the FreeTaxUSA software messing up my stuff?
posted by anonymous to Work & Money (8 answers total) 2 users marked this as a favorite
Did you get your stimulus payments from the government in 2020? If not, you'll get them on your tax return. In that world, a slight refund makes perfect sense. If you are not married, then the rough calculation is $20K - $12K standard deduction = $8K taxable wages in the 12% tax bracket + 15.3% for Medicare/SSI for a net $2024 taxes owed. There is a $1200 + $600 stimulus payment for 2020, which would pay almost the entirety of your taxes (if you haven't received them already).
posted by saeculorum at 8:00 PM on April 15, 2021

I used Free Tax USA both last year and this year for 1099 income and it was accurate. It's difficult to say what the difference is without seeing your return.

Two thoughts:

Did you receive the two stimulus checks for 2020 and did you report that to FreeTaxUSA?

Or, if you had federal income tax withheld from your unemployment checks, the federal government waived those taxes at the last minute so it would be refunded to you if it was withheld.
posted by muddgirl at 8:03 PM on April 15, 2021 [1 favorite]

Sorry, to be specific they exclude $10,200 of unemployment compensation from taxes.
posted by muddgirl at 8:10 PM on April 15, 2021 [2 favorites]

Do you pay estimated taxes? If you made less income this year, but paid estimated taxes based on previous years, you may have overpaid those and hence don’t owe.
posted by music for skeletons at 9:12 PM on April 15, 2021 [1 favorite]

FreeTaxUSA is a legit service that is accurate. The IRS accepting your return does not mean they accept it as accurate. It means they got it electronically and it is in the proper format. It is hard to guess why you are entitled to a refund, but I have full confidence in FreeTaxUSA.

The government gave away TRILLIONS of dollars recently and in 2020. You getting a few thousand somehow is not unreasonable.
posted by AugustWest at 9:30 PM on April 15, 2021 [2 favorites]

Do you have a health plan on the ACA exchange? If you paid health insurance premiums based on your previous income you might also get a sizable amount of money back in the form of the federal credit. The various relief bills all tweaked ACA plans to be more favorable in various ways.

That, not receiving stimulus payments, a few estimated tax payments, PPP loans & EIDL advances aren't taxable, the non-taxable $10,200 in UI, standard deduction & home office deduction... easy to see how all those add up if you profit is an average amount for a sole proprietor.

I haven't actually done my taxes yet, but I've been doing the math in my head and it's definitely not impossible to get a refund even if you're a freelancer who usually owes a lot of money at tax time.
posted by bradbane at 9:55 PM on April 15, 2021 [1 favorite]

To put your mind at ease, try starting your return on another site and see if the numbers come out close.
posted by soelo at 1:01 PM on April 16, 2021

Free tax USA should allow you to download a PDF of the actual return. You can check their math quite easily.
posted by a robot made out of meat at 7:03 AM on April 17, 2021

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