Unclaimed Tax Refunds
Each year, the Internal Revenue Service (IRS) releases their latest statistics on the billions of dollars it has in unclaimed tax refunds. The most common cause of a refund going unclaimed is failure to file a tax return. But there are also undeliverable refunds attributed to bad mailing addresses too.
In this article, we're going to cover the topic of unclaimed tax refunds. As part of that discussion, we'll provide some examples that explain how this can happen, including the dollars available each year. We'll also explain the process for claiming a refund, as well as how to ensure taxpayers receive the money they're owed.
The availability of this pool of dollars stem from one simple fact: the amount of income taxes paid is greater than the amount of taxes owed. But there are tax rebates, or credits owed taxpayers, that go unclaimed too. This includes the Telephone Excise Tax Refund of 2006, the Economic Stimulus Payment of 2008, the Recovery Rebate Credit of 2009, as well as the Earned Income Tax Credit.
The list below contains some examples of unclaimed tax refunds.
- Back in 2006, taxpayers were permitted to claim a credit for excise taxes the government had improperly collected. The refund could be as high as $60, depending on the number of dependents and exemptions claimed by the taxpayer. Despite the fact no substantiation was required, 28% of taxpayers failed to claim this credit.
- In 2008, the federal government issued Economic Stimulus payments to all eligible taxpayers. Nearly 280,000 of those checks were classified by the United States Postal Service as undeliverable. This translates into $163 million in lost or missing refunds.
- In 2008, approximately 104,000 standard tax refunds were also classified as undeliverable. This amounted to $103 million in unclaimed refunds.
- The most common source of unclaimed tax refunds has to do with individuals failing to file tax returns. The dollars associated with these refunds are quite large, averaging nearly $1 billion annually from the years 2008 through 2017.
Claiming a Tax Refund
If a taxpayer fails to claim a refund, the money eventually becomes the property of the U.S. Treasury. The easiest way to claim a refund is to file a tax return. Taxpayers that are owed money are never penalized for filing a return after its due date. Tax forms for prior years can be obtained by calling the IRS at the toll free number 1-800-829-3686 or by visiting the IRS website.
Refunds associated with tax returns must be claimed no later than three years after the tax year filing deadline. For example, taxpayers entitled to a refund in the tax year 2014 have until April 15, 2019 to claim their refund.
IRS CP81 Notice
If the IRS does not receive a return, they may send what is called a CP81 Notice with the following warning:
"We haven't received your tax return for a specific tax year. The statute of limitations to claim a refund of your credit or payment for that tax year is about to expire."
Taxpayers receiving this notice are encouraged to immediately file the missing tax return. If money is owed in later years, the refund will be applied to that tax return. If no money is owed, the IRS will issue the taxpayer a check for the overpayment.
Taxpayers that believe they have submitted a return more than eight weeks prior to receiving this notice are encouraged to submit a second copy of the return. Once filed, information can be obtained from the IRS's "Where's My Refund" website 72 hours after the IRS receives an electronic return. Information for tax returns mailed to the IRS can take as long as three to four weeks to obtain.
Unfortunately, the information for prior tax year returns are not available if filed after the most current tax year's return. For example, if a 2020 tax return is filed in January 2021, and a 2019 return is filed in February 2021, the information on the "Where's My Refund" page will be for the tax year 2020. Additional information on all returns can only be obtained by calling the IRS at 1-800-829-1954.
Ensuring a Refund is Delivered
The easiest way to collect a tax refund is by choosing to receive the refund as a direct deposit into a personal checking or savings account. This eliminates the possibility of lost or stolen checks. Electronically filing a tax return also increases the chance of receiving a refund, since the IRS is able to acknowledge its receipt of the document electronically.
When changing a mailing address, the IRS should be notified using Form 8822. When a tax refund is due and undelivered, the "Where's My Refund" website will prompt the taxpayer to update their address for up to 12 months.
Finally, if anyone believes their refund is lost or undeliverable, they can call the IRS's toll free assistance telephone line at 1-800-829-1040. This telephone number can be used to both check the status of a refund as well as confirm a change of address.
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