Guest Post by Kristen Baker
Every year, roughly one million Americans have unclaimed tax refunds from the IRS that are due to expire. In four of the last five years, these unclaimed returns have totaled more than $1 billion. With last year’s median tax return at $879, the annual median has risen for six consecutive years.
Unfortunately, many people don’t even know that they may be owed money by the IRS. Luckily, the IRS releases the data every year in March, giving taxpayers just enough time to claim before Tax Day on April 15th. What could you do with an extra $500 or more? Below are steps to determine if you have an unclaimed tax return and how to claim it if you do.
Key Takeaway: Pay attention to the details.
You might be missing a refund because:
- You didn't earn enough to file.
- Your address was wrong.
- You qualified for an EITC.
Best practices for filing:
- Submit your tax return electronically.
- Choose direct deposit as your refund method.
- Hold onto necessary financial documents for at least three years.
Why your refund is missing
Whether you’re young or old, wealthy or poor, anyone can be missing a tax refund. In some cases you may have made a mistake while filing and in others you may not even be aware. These are a few reasons why you may be missing a return:
- You didn’t earn enough to file. This is often the case with teenagers, part-time workers, and the self-employed. If you failed to meet the minimum earnings threshold for your filing status, you probably never filed a return. However, you could still be owed a tax refund. If taxes were taken out of your paycheck every week, you can file a return.
- Your address was wrong. The wrong address is always a risk when choosing a mailed refund, rather than direct deposit. If your refund was mailed to the wrong address and bounced back to the IRS, they are not required to notify you.
- You qualified for an EITC. Even if you didn’t earn enough to pay taxes, you could be eligible for a refund through the Earned Income Tax Credit (EITC). An EITC typically benefits low to moderate wage earners, especially those with children. The IRS website can help you determine if you are eligible.
How to claim your return
First, you should review your last several tax filings to see if any are missing. Even if they’re all there, however, that doesn’t mean that you can’t claim a larger refund. You can still file an amended tax return to claim deductions like the EITC and others.
If you suspect that you have unclaimed tax money waiting for you, or even if you’re unsure, all you have to do is file a return for the specific year. Luckily, the IRS gives you a three-year period to file for any unclaimed returns. This year, you can go back as far as 2016.
Best practices for filing
Whether it’s filing for past years, or even this year and beyond, there are several best practices to make the process easier.
- Submit your tax return electronically. Filing your taxes with a paper form leaves the process more susceptible to mistakes—an e-file does all of the calculations for you. Another consideration is the time it takes for the IRS to process returns. E-files will be processed and returned much quicker. The average time for the IRS to process an e-file is only a few days, whereas a paper file may take a few weeks.
- Choose direct deposit as your refund method. Direct deposit is the quickest way to access your refund. The IRS returns 90 percent of e-files with direct deposit within three weeks of when they were filed, as opposed to at least twice that amount of time for a mailed return.
- Hold onto necessary financial documents for at least three years. To avoid future misfilings or rectify missing tax returns from the past, you’ll want to keep your financial documents organized. By properly tracking and storing your documents, you’ll have a point of reference and readily available information, making tax season less stressful. Not only will these documents be useful if you need to file for an unclaimed tax return, but they can provide important insights for your next return as well. Documents that you should save include past returns, any itemized deductions, and income statements.
Tax season can be stressful as you begin to file your return. However, by taking the proper steps, you can prepare yourself for success. Make the most of your tax return this year and don’t forget to check for any unclaimed refunds from years past.
Kristen Baker is a personal finance enthusiast and content creator. Outside of work, she thoroughly enjoys taking her dog to “Dogs Allowed” coffee shops, reading, and admiring art exhibitions.