If You Make Less Than the Standard Deduction, Do You Still Pay Taxes?

Many people wonder whether they owe taxes if their income falls below the standard deduction. In most cases, they will not owe federal income tax, but other factors still matter. Taxes may be withheld from paychecks even when no tax liability exists, and refundable credits can provide financial benefits.

Income Threshold and Filing Requirements

The IRS sets income thresholds each year to determine who must file a tax return. These thresholds are based on filing status and the standard deduction, which for 2024 is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household. If income falls below these amounts, filing a return is generally unnecessary.

Age and filing status can further affect filing requirements. Single filers over 65 receive an additional $1,950 deduction, raising their threshold to $16,550. Married couples where one or both spouses are 65 or older receive an extra $1,550 per eligible spouse. These adjustments reduce taxable income, making it even less likely that lower-income individuals must file.

Certain income types may still require a tax return. Self-employment earnings over $400 must be reported due to self-employment tax obligations. Dependents with more than $1,250 in unearned income, such as interest or dividends, may also need to file. These rules ensure that specific income sources are accounted for, even when total earnings are low.

Federal Withholding and Potential Refunds

Even if no tax is owed, employers may still withhold federal taxes from paychecks. Payroll systems estimate tax liability based on earnings without considering deductions or credits. When income falls below the filing threshold, this withholding often results in an overpayment, meaning a refund is available if a tax return is filed.

The amount withheld depends on the details provided on Form W-4, which determines how much tax is deducted from each paycheck. Employees expecting to earn less than the standard deduction can adjust their W-4 to minimize or eliminate withholding by claiming exemption if they had no tax liability the previous year and expect none in the current year. However, failing to update this form when income increases could lead to underpayment issues.

Withholding also applies to certain types of non-wage income, such as retirement distributions or gambling winnings. In these cases, a portion of the payment is withheld for taxes, even if no tax is ultimately owed. Filing a return allows individuals to recover these amounts.

Refundable Credits and Eligibility

For those earning below the standard deduction, refundable tax credits can provide financial benefits even when no tax is owed. Unlike nonrefundable credits, which only reduce tax liability to zero, refundable credits allow taxpayers to receive money back from the IRS.

The Earned Income Tax Credit (EITC) is one of the most significant refundable credits, designed for low- to moderate-income workers. For 2024, the maximum EITC ranges from $632 for filers without children to $7,830 for those with three or more qualifying children. Eligibility depends on income, filing status, and earned income from wages or self-employment. Investment income must remain below $11,600 to qualify. Many eligible individuals miss out on the EITC simply because they do not file a return.

The Child Tax Credit (CTC) also provides refunds for eligible families. Up to $1,600 per child under the Additional Child Tax Credit (ACTC) can be received as a refund if the full credit exceeds tax liability. Families must have at least $2,500 in earnings to claim the refundable portion.

Education-related credits, such as the American Opportunity Tax Credit (AOTC), also offer refundability. The AOTC provides up to $2,500 per eligible student for higher education expenses, with 40% of the credit, or up to $1,000, refundable. This can help students or their families recover some costs even if they owe no taxes.

State-Level Differences in Tax Obligations

While federal tax rules determine whether a return must be filed, state income tax laws vary. Nine states—such as Texas, Florida, and Washington—do not levy an individual income tax, meaning residents there may have no state filing requirement. Other states have their own income thresholds, deductions, and credits that differ from federal guidelines, which can result in a state tax liability even when no federal tax is owed.

Some states, including California and New York, have lower standard deductions or personal exemptions than the federal government, leading to taxable income at the state level despite being below federal limits. California’s standard deduction for single filers in 2024 is $5,363, far below the federal amount, meaning more income is subject to taxation. Additionally, states may have different rules regarding tax credits, such as refundable Earned Income Tax Credits, which can provide additional refunds or reduce state tax burdens.