You may not know it, but there’s a chance you are one of the million taxpayers in the U.S. who’s not aware that a tax refund exists. Here’s how you may get one.
Determining and Getting a Tax Refund: Things to Know
1. Existence of Tax Refund
The IRS estimates that around $1 billion worth of tax refunds remained unclaimed in 2016. This is because most taxpayers have failed to notice them by not filing their tax returns on time.
People fail to file tax returns due to different reasons. Some taxpayers simply don’t have much free time to file tax returns. Others forget deadlines or thought they didn’t have to submit one. When the time comes that they finally are able to file the returns, they realize they are actually eligible for a tax refund from previous years.
Unfortunately for some of them, they forfeit a tax refund because it’s already too late to claim one.
2. Tax Refund Rule
The IRS dictates an annual income threshold, wherein taxpayers whose income does not reach a certain amount do not have to pay income taxes. For those who qualify under this rule, this doesn’t mean that there are no other tax deductions in your paycheck.
This is why it’s important for you to check your year-end W-2 form. Because there might be other deductions in your paycheck, chances are you may be eligible for a refund from other tax deductions.
Checking your W-2 form allows you to determine whether there’s a tax refund waiting for you. If there is, immediately file the necessary tax returns.
3. Claiming Tax Refund
What if you realize you are eligible for a tax refund from previous years? The IRS actually provides a three-year window for taxpayers to go back and file previous tax returns to claim unpaid refunds. Simply download the necessary tax forms on the IRS website or call them at 800-TAX-FORM (800-829-3676) for assistance.
There will be instances in which supplementary documents like W-2 or 1099 forms are necessary. If you don’t have your own copy, you have to request copies from your employer (or individuals who pay you). If they’ve lost their copies as well, you have to fill out the Form 4506-T to request a free copy.
4. Claiming Additional Refund
What if you’ve discovered an additional refund after you’ve already filed a tax return? Just complete an amended return. You must file this document with the IRS before the three-year window expires.
If the deadline is already near but you need more time to process documents, then you may file a deadline extension. The IRS will still issue refunds if you request an extension and file a return within three years from the extended deadline.
5. Claims Delayed/Denied
Is it possible that the IRS may delay or deny your application for a tax refund? Yes, if you meet any of the following scenarios:
- not fully accomplishing a tax return
- committing computation errors on a tax return
- having a mismatch in your Social Security Number
- inputting the wrong direct deposit information
- forgetting to sign a tax return
In the event that the IRS denies your claim for tax refund, you will receive a notice of disallowance. You have until 2 years after receiving the notice to bring a suit to the IRS and appeal your case. Failure to act on this IRS decision after 2 years will lead to you forfeiting the tax refund.
The three-year window may not apply for all refunds. There are at least 2 exceptions to the three-year window rule:
- For refunds of deductions from bad debt or worthless securities, taxpayers have up to seven years to claim them.
- Taxpayers who can’t manage their finances independently due to physical or mental impairment are not included in the three-year window rule.
7. Automatic Debt Payment
You may not always get a tax refund, especially if you still owe the IRS (or the government) any tax dues. For example, a refund may automatically apply to a student loan or any unpaid child alimony.
Also, there may be instances wherein you owe money to your state or city. In this instance, the IRS will forfeit the tax refund and divert your money to pay outstanding state or local tax debts instead.
8. Splitting Tax Refund
You may wish to divide and allocate your tax refund in a specific way. Say, you want to deposit your refund to different bank accounts. You may request a refund split by filling out Form 888.
You can also use this form if you want to purchase U.S. Series I Savings Bond. However, you can only buy up to $5,000 in paper or electronic bonds using your tax refund.
9. Uncollected Tax Refund
What happens when a refund remains uncollected after the three-year window expires? This is what the IRS calls an “excess collection.” The federal government gets to keep the money. And unfortunately for the taxpayer, the amount cannot be applied to future tax years.
To avoid having to forfeit a tax refund, always make sure to file tax returns on time. But if you really can’t make it on time, simply follow the guidelines provided by the IRS on the three-year window and the deadline extension.
Have you ever experienced missing out on a tax refund? Share with us your experiences and insights in the comments section below.
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