Getting refund when no taxes have been paid

[scottmcclelland]

Turbo Tax says I am owed a refund. How is that possible, though, if I have paid no taxes throughout the year as a self-employed business owner who also received pandemic relief and unemployment?

[scottmcclelland]

I should add that I am self-employed with deductions; yet Turbo Tax is using the standard deduction in my particular case. Same thing happened last year, so I just deleted some of my business deductions so I could owe some tax. It didn't make sense to me that I could be getting a refund when I have not paid quarterly taxes up to that point (because I had no idea what I was going to be making).

[DawnC]

You may have qualified for the Earned Income Credit (look on Line 27 of Form 1040 ) or check Line 30 of Form 1040 - that is the recovery rebate and you should only be claiming that if you did not receive the correct amount of stimulus payments (#1 and #2 but not #3).   Verify that amount is correct.   Most people report $0 on Line 30.  

If your business operated at a loss (see Line 8 of Form 1040 or Schedule 1, Line 3), that loss will offset other income on your return, so it is possible to receive a refund.   Also, there was legislation passed recently that allows up to $10,200 of your unemployment to be tax free.   If you had federal tax withheld from your UE, you would be due a refund for that.

And you are allowed to take the standard deduction on top of your business deductions.    You said you removed some deductions (last year?), but please note that, if you do qualify for the EIC, you are required (see link below) to take all relevant business deductions.   If you qualify for the deductions and refund, claim all legitimate business expenses.   There are ZERO reasons to pay tax that you do not owe.   

As you have probably noticed, looking over and reviewing your Form 1040 pages 1 and 2 will provide the best explanation for why you are getting a refund.  

Earned Income Tax Credit & Other Refundable Credits

[Mike9241]

some tax credits are partially or wholly refundable which means that even if your tax liability was $0 without them, then you would be getting back the refundable portion.