Tax & Business Tips

Don’t Lose Your Refund!

By June 10, 2021No Comments

The tax filing due date often brings a sigh of relief to most taxpayers. Unfortunately, every tax day also closes the window on the ability to claim a refund. According to the IRS, in 2017 up to 1.4 million individuals representing $1.35 billion in unclaimed refunds had this money turned over to the U.S. Treasury this past tax day.

As unlikely as this sounds, losing a refund could happen to you or someone you know.

The Causes

You may be due a refund beyond your tax liability. While most tax credits can be used to reduce your tax liability down to zero, there are a few credits that allow you to receive money beyond the amount of your tax liability. The most common examples of these refundable credits are the Earned Income Tax Credit, the American Opportunity Tax Credit and the Child Tax Credit. Taxpayers often fail to take advantage of these refundable credits because they assume since they owe no tax they are not entitled to a refund.

Part-time workers often lose refunds. Students and part-time workers are often the innocent victims of employer payroll systems. Payroll systems might assume you are working full-time and withhold pay from your wages at too high a rate. While some part-time workers may owe no tax, these excess withholdings are only returned to you in the form of a refund when you file a tax return.

Seniors can also be victims. The same situation happens to seniors that have money withheld from their retirement fund disbursements and Social Security checks. Their income is often low enough to not require filing a tax return. When withholdings are involved, the non-filing of a tax return could lead to a lost refund.

Death and disability create tax-filing confusion. When the person who normally organizes and files taxes for the family becomes disabled or passes away, there’s a possibility that timely filing of tax returns gets missed.

I need to be perfect. A number of taxpayers do not file on time because they are missing a piece of information. The dilemma of needing to be 100% accurate before filing your tax return can be debilitating. This concern often creates non-filed tax returns and lost refunds.

Economic impact payment confusion. With multiple rounds of stimulus checks approved by Congress, it can be difficult to keep track of them to ensure you receive your payments and that the payment amounts are correct. This is especially true if you do not normally have to file a tax return.

What you can do

You have three years. You have the later of three years from the original filing due date or two years from the time you paid any tax to claim your refund or file an amended tax return. This timeline is strictly enforced by the IRS. If you miss the deadline by even one day, you could be out of luck. For most of us this means tax years 2018, 2019, and 2020 are still open for refund requests by filing a tax return or amending a tax return filed in error.

Non-filer double check. If you did not file a tax return because you did not think it was necessary, conduct a review of your W-2’s, 1099’s and other documentation. If there is money withheld, ask for assistance to see if a refund is possible.

Check out the Recovery Rebate Credit. If you did not receive economic impact payments, and did not file a tax return, the IRS offers free options to prepare and file information to receive payment on how to file at www.irs.gov.

Thankfully, there are a few exceptions to these deadlines for bad debt, worthless securities, and for those unable to manage their financial affairs. But do not count on this as a fall back. If you had money withheld or if your tax return filing is not current, you could possibly be a victim of lost refunds. Now is the time to take action for 2018 thru 2020.