Did you know that every year there is upwards of a billion dollars in unclaimed federal tax refunds? It may come as a surprise that so many people are leaving their money on the table, but it’s true, and it happens every year. The reason these taxes go unclaimed vary, but the reason they don’t get mailed out is simple: The IRS won’t send out tax refunds if a federal income tax return hasn’t been filed. This means you have to be proactive.
Most unclaimed tax refunds belong to people who did not make much money during the year, and therefore are not required to file a tax return. That’s right, the IRS actually tells you that if you make below a certain amount each year, you don’t have to file a return. But that’s usually a mistake. Just because you don’t have to doesn’t mean you shouldn’t. Even though you didn’t make a lot of money you still probably had taxes deducted from your paychecks. With various tax credits and deductions, you could certainly get some of that back, but you have to file a return in order to be eligible for the refund.
The other big reason that tax refunds go unclaimed has to do with tax credits. There are a number of tax credits out there, but the biggest, most overlooked tax credits are the refundable Earned Income Tax Credit (EITC) and various economic stimulus credits that have been issued in recent years. Sometimes filers do their tax return and submit it on time, but miss out on these tax credits. It is up to you to claim them. It isn’t something the government will catch and gladly send you a check for. Want to see if you’re eligible for the Earned Income Tax Credit? Try the TurboTax EITC Calculator. The calculator is updated every tax season due to tax law changes, but you can still get an idea if you are eligible for the Earned Income Tax Credit even if you are estimating a prior year.
So, how do you determine if you are owed money and how can you go about requesting it? First, in order to collect a refund, a tax return must be filed with the IRS no later than three years from the due date of the return. After that, the money gets absorbed by the treasury, so you should stay on top of it. There is no penalty for filing a late return if you qualify for a refund. You will also need to have your tax documents, namely your W-2s. If it has been a while, it may mean contacting your employer and getting new copies. Once you have the supporting documentation, you can go ahead and complete those past tax returns.
There is a catch. You have to be caught up on your taxes in the years following the year you’re requesting the refund. For example, if you’re trying to get money back from your 2009 tax return, you will have to make sure you’re squared away with 2010 first.
If you think you may be one of the millions of tax filers who could have some money waiting for you at the IRS, now is the time to start thinking about going after it. If you made money in the past few years but didn’t make enough to be required to file, it’s a no-brainer. You should think about getting those past returns filed. If you already filed your previous tax returns, it would be a good idea to dust them off and look through them to make sure you took advantage of the EITC (if you qualified), the Making Work Pay Credit, and any others. Sure, it may only be a few hundred dollars, but why not get your hands on it if you’re entitled to it? TurboTax will guide you through tax deductions and credits so that you don’t miss out on any of your refund.