What’s the Deal with Unclaimed Tax Refunds?
Each year, billions of dollars go unclaimed as unfiled income tax returns. The IRS reported $1.4 billion in unclaimed refunds for 2015 alone. While that might seem like an unrealistic number, all that money came from an estimated 1.2 million taxpayers who failed to file their tax returns. Unfortunately, the IRS keeps the unclaimed refunds after three years, but if you were one of the millions of taxpayers not to file a tax return in 2018, it’s not too late to claim your tax refund in 2020.
What is an unclaimed tax refund?
An unclaimed tax refund happens when someone fails to file a federal income tax return. It can happen for many reasons. Sometimes an unfiled tax return is caused by a death or illness of the taxpayer, or through a lack of understanding or experience with the tax return process. Part-time workers might think that they are not eligible for a tax return because they earned below a certain threshold. While that might be the case, it’s better to double-check with the IRS whether or not a tax return is required for the year. If you are unsure, you can use the Minimum Income Requirements to determine if you need to file a tax return this year.
Unclaimed refunds can also come in the form of mailed checks that may not reach the intended taxpayer. Most of these errors are caused by typos on the filed tax return or a change of address since the return was received. Incorrect bank information on the filed tax return can also cause canceled direct deposits. In either of these cases, you can call the IRS to have your address or bank information updated.
How can you get your unclaimed tax refund?
The IRS allows up to three years to file a return on any unclaimed tax refunds. But since it’s not the responsibility of the IRS to find your unclaimed tax refund, you will have to file your tax return to claim it. First, you need to locate all of your necessary documents for the year in question. That could include W-2s, 1099s,1098s, receipts, or bank statements. If you have lost any critical forms, you can request copies from the IRS using a 4506-T form. Waiting for the forms might take extra time, but it’s better than trying to file your tax return with incomplete or incorrect information.
No matter how you are preparing your taxes, either on a mail-in form or electronically, you will have to find the correct tax return form for the year you need to file. If you are using a software program to prepare your taxes, you can typically find the correct forms online. However, if you want to file taxes traditionally, you will have to use a 1040 Form for the given year. From there, you can fill out your tax return as you normally would. If you prepared your taxes electronically, you will have to print them out and mail them to the IRS, since they only accept late returns in paper form. If you don’t want to mail your tax return, you can hand-deliver them to your nearest IRS office.
Since you are filing back taxes for a year you missed, you could face a penalty and interest for the taxes you owed. If you did submit your taxes previously but didn’t pay any taxes owed, you will still have to pay fees and interest. Your fee could be as high as .25% of your tax bill for every month it was late. If you filed your return before the due date that year, the percentage could be less. On the other hand, if you didn’t owe any more taxes to the IRS and will be getting a refund, you will have no penalties or interest to pay.
How long does it take to receive your unclaimed tax refund?
If you opted to get your refund check mailed to you, it could take up to 2 months. If you are in a hurry to get your unclaimed tax refund, consider having it directly deposited into a checking account without fees. Not only will this speed up the payment process of your tax refund by a few weeks, but you won’t have to deal with maintenance or overdraft fees when you go to spend your refund. Plus, you don’t have to worry about a refund check getting lost in the mail or delivered to the wrong address.
Even though filing back taxes means extra work at tax time, it can mean a big refund check. By failing to file a tax return each year, you risk harsh penalties, compounding interest, audits, and even prosecution. The simplest way to avoid trouble with the IRS is to submit your tax return on time. It will save you a lot of time, money, and stress in the years to come.
