How to Avoid Unclaimed Tax Refunds
According to the Internal Revenue Service (IRS) itself, the IRS has more than $900,000,000 in unclaimed tax refunds—and that is just for refunds related to a single tax year! How does that happen? Unclaimed refunds are primarily caused by one or both of the following situations:
- A taxpayer has taxes withheld from his or her paycheck, but has income less than the amount necessary to require an income tax return to be filed. The taxpayer chooses not to file, and thereby gives up the ability to get his federal withholding back. (Keep in mind that the amount of a tax refund might even exceed the amount paid via tax withholding if you are eligible for Earned Income Tax Credit.)
- The taxpayer filed a tax return and a check was mailed but, for some reason, mail delivery was not completed. This could be due to a bad address or a bad day by your postal carrier. Other possibilities include your name change, your divorce, or your decision to move.
While there’s no penalty for failing to claim a refund owed to you, there is a time limit as to how long you can wait before you ask for your money by filing a tax return.
For returns which have not been filed, you typically have three years from when the return was originally due.
So, you must file your 2011 return by April 15, 2014 to salvage your tax refund for that year. Plus, to state the obvious, this is your money we’re talking about, so even if your income is less than the IRS income threshold you should still file your taxes if you:
- Had federal taxes withheld
- Qualify for refundable tax credits like Earned Income Tax Credit
How Can You Avoid an Unclaimed Refund?
One easy way to avoid an unclaimed refund is to always timely file your tax returns. While filing a 2013 tax return now in order to get your refund will start the process of getting your money, if you failed to file the more recent 2011 and 2012 returns, your refund will likely be held up. So, get caught up and stay caught up.
Another way to make sure that you don’t miss out on your tax refund is to avoid a misdelivered refund check and receive your tax refund via direct deposit. You can do so right within your tax return. Not only is a tax refund safer and easier with direct deposit, but it’s also faster than a paper check.
With an increasing amount of money at stake, and an increasing amount unclaimed, it has never been more important to file your tax return each year even if you earn low income.