This month, the IRS announced there is approximately $1 billion in unclaimed federal income tax refunds for those who did not file their returns in 2013.
There is no penalty for filing a late return if it results in a refund, but the deadline to collect money from a 2013 tax return is no later than this year’s tax deadline – April 18. After three years, the refund becomes property of the U.S. Treasury.
However, it is possible the IRS will hold a refund check if there are unfiled tax returns for 2014 and 2015. It may also be applied to any owed taxes to the IRS or a state tax agency. Furthermore, it may be used to offset unpaid child support or student loans.
The IRS provides a chart of the estimated number of individuals in each state that are eligible for a 2013 refund and the median potential refund, which ranges between a $619 and $917.
Furthermore, individuals who qualify for the Earned Income Tax Credit have more to lose by not filing their tax return. In 2013, the credit was worth as much as $6,044. Also, the time frame that limits the IRS to assess and collected outstanding balances does not begin until after the return is filed.
Reconstructing expenses and income from previous years is complicated.
Current and prior year tax forms with accompanying instructions can be found at the IRS website. Taxpayers should contact employers and banks for forms such as a w-2, 1098,1099 or 5498 or use the “Get Transcripts Online” tool to obtain previous year wage and income transcripts.
If you are concerned that you may owe for an unfiled year, ignoring the problem isn’t the solution. Penalties increase the tax liability quickly, and it is important to not let the inability to pay a tax debt prevent you from filing.
The penalty for failure-to-file is 5 percent of unpaid taxes compounded monthly. It won’t exceed 25 percent of unpaid taxes. This can be combined with a failure-to-pay penalty, which is also 5 percent. The fact is that problem quietly gets worse as you ignore your unfiled return or unpaid taxes.
By law, the IRS may file a substitute return for an individual, which will not include any expenses or tax credits often making the tax liability more than it should be for the year. If this happens it is possible to refile an updated return, and the IRS will generally adjust your account to reflect the corrected exemptions and expenses.
At Polston Tax, we often work with taxpayers with unfiled tax returns. If you find yourself overwhelmed and uncertain about what to do you can call give us a call at 844-841-9857. We're open 8am-5pm Central.
