Re-entering society can be a challenging time. Filing taxes may add to that complexity. Here’s what you need to know about filing taxes if you are a returning citizen or currently incarcerated.
1. You may be eligible for tax credits
Tax credits reduce the amount of taxes you owe and may provide a refund at tax time. Even if you make less than the tax filing threshold, you may still qualify for tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit.
Income earned in prison does not qualify for the EITC or the CTC. You may still be eligible for tax credits if you receive income from other sources, such as income earned before incarceration or income earned by a spouse who is not incarcerated.
To claim the credits, all you need to do is file your taxes. This eligibility quiz can help you understand how the credits work, whether you qualify, and how much you may receive.
Even if you aren’t eligible for tax credits, filing your taxes is beneficial. Your taxes serve as proof of income that you can use in the future for renting a home or applying for loans. It also provides a record of your work history which is needed to qualify for social security benefits.
2. You can still file taxes for previous years
If you did not file taxes in previous years due to incarceration, you have three years from the due date of your last tax return to claim any credits or refunds for which you may have been eligible.
If you did not file taxes and owe money, you may be subject to penalties and interest. If you can’t pay the full amount, you may qualify for a payment plan, tax debt settlement, or temporary collection delay from the IRS. Visit your nearby Taxpayer Assistance Center (TAC) or Low Income Taxpayer Clinic (LITC) for help.
3. You qualify for an exemption from the Affordable Care Act (ACA) requirements
There is a federal requirement to have insurance coverage under the ACA. If you don’t have coverage, you may have to pay a penalty. However, you are exempted from this requirement for any month you were incarcerated, even if it was one day in a month. The exemption also applies up to two months after your release.
When claiming the exemption on your 2016, 2017, or 2018 tax return, use Form 8965, Health Coverage Exemptions. Complete Part III using code “F” in column (c). Refer to Form 8965 Instructions for guidance. You may qualify for other exemptions for months you were not incarcerated.
Starting in tax year 2019 (which you file taxes for in 2020), the penalty for not having health insurance no longer applies and you won’t be required to claim an exemption.
4. There are ways to file your taxes if you are currently incarcerated
If your stay is temporary: If your prison term is temporary, file for a tax extension. The extension allows you to file after the tax deadline. Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, will give you a six-month filing extension. You must file this form by the regular tax deadline.
If you are incarcerated for an extended amount of time: You have a couple options. In-house tax or lawyer services may be available to you. Another option is to designate Power of Attorney to someone you trust to file your taxes and take care of your finances. You must complete the form to assign someone power of attorney in front of a notary and get it notarized.
If you are filing with a spouse: Your spouse can complete the tax forms on your behalf and bring them to you for signing.
5. Free tax assistance is available
Volunteer Income Tax Assistance (VITA) and Tax-Aide provide free income tax assistance for those who earn less than about $54,000 a year. Accuracy is prioritized: tax preparers at these sites are IRS-certified annually and all returns are reviewed by a second tax preparer. Tax-Aide, which is run through the AARP, primarily serves seniors, although they cannot turn younger clients away. VITA offers free tax preparation for workers regardless of age. Find your local VITA site here, and find your local Tax-Aide site here.