Don't Mess With Taxes

I know you're tired of taxes continuing into July. I know you just want to be done with your filings and the Internal Revenue Service and move on to other things.

But I also know that most of you, especially if you're facing coronavirus-related financial difficulties, don't want to just hand over money, possibly hundreds of dollars to Uncle Sam.

You'll do just that if you were due a tax refund on your 2016 taxes and didn't file for it during the 2017 tax season.

That's the situation for an estimated 1.4 million individual taxpayers. If they don't claim those 3-year-old refunds soon, specifically by this coming July 15, they will surrender their tax cash. And it's a lot of money.

The Internal Revenue Service says it's holding on to, at least for the next few days, unclaimed 2016 tax year income tax refunds worth more than $1.5 billion.

What are those big numbers to you personally? The IRS says the median refund, which the halfway point of the totals, is $861. I know I have plenty of ways to spend that much money.

Why people don't file: This is not a new occurrence. Every year, the IRS announces that years earlier millions of folks didn't file tax returns that could net them billions in refunds and therefore didn't get that tax cash they were due back then.

There are many reasons for such oversights.

Sometimes people get busy and simply don't get around to sending their returns to the IRS.

Some don't realize they need to file at all. That's often the case with students and, increasingly, gig workers. These folks aren't in the main, traditional job earning pools, so filing is not necessarily routine for them.

Others think their refund is too small to mess with filing a 1040. (If that's you, let's talk!)

And some people don't even know they might be due a refund. That's why even if you aren't legally required to do so, it's sometimes a good idea to file a tax return anyway.

Whatever the reason, the IRS wants you to come and get your cash — really! — and soon.

Now or never: Tax law says that you have three years to claim a refund. That refund timer starts on the filing due date for the tax year for which you're due the tax cash.

This 2020 tax season means that it's 2016 tax year returns that were due back in April 2017. But since the April 15, 2020, filing deadline was moved due to COVID-19 considerations to July 15, 2020, this month's fast-approaching deadline is the one that also applies to those old 2016 returns and associated refunds.

That timetable was emphasized by IRS Commissioner Chuck Rettig in announcing this latest batch of unclaimed refunds.

"The IRS wants to help taxpayers who are owed refunds but haven't filed their 2016 tax returns yet," said Rettig. "Time is quickly running out for these taxpayers. There's only a three-year window to claim these refunds, and the window closes on July 15. To claim the refund, a return for tax year 2016 must be filed by July 15, 2020."

The reason for the urgency is that tax law also says that refunds that aren't claimed within that three-year period are forfeited. Yep, if you don't get your 2016 refund now, the money will stay in the U.S. Treasury's account.

What forms, how to file them: OK. We get it. July 15. Act now to get your old refund or forever hold your peace.

But just how do you do this?

Unfortunately, it's going to take a little bit of legwork. And you'll have to fill out that old form by hand instead of using tax prep software. Yep, that's right. Snail mail is required. There's no e-filing of old forms.

Start by getting tax year 2016 forms. They're available at IRS.gov's online forms and instructions page. Once there, click on the Find prior years forms, instructions & publications link.

Remember, since we're going back in tax time, you'll have a choice of 1040s. Changes under the Tax Cuts and Jobs Act (TCJA) prompted the IRS to go to just one Form 1040 and, this year, three schedules. But back then you could file one of three 1040 versions, the long 1040, the slightly shorter 1040-A and, as its name indicated, the easiest 1040-EZ.

Generally, you should choose the simplest tax form for your filing situation. This pre-TCJA chapter from my tax book has details on why you might choose one 1040 form over the other two.

Once you decide which Form 1040 one to use, download it. Sorry, that's your only option this filing season. Since the IRS is just now restaffing its nationwide offices after COVID-closures earlier this year, the option to call the agency's distribution center and have the forms mailed to you is, well, no longer an option until, according to the recorded answering machine, "further notice."

In addition to the proper 2016 tax year forms to file, you'll also need your old tax documents. This includes things like your W-2, 1098, 1099 or 5498 forms. If you don't have copies in your personal files, the IRS recommends you first try to get copies from your employer, bank or other payer.

If you can't get those informational documents from those sources, you can order a free wage and income transcript by using the IRS' online Get Transcript tool.

Alternatively, you can file Form 4506-T to request a wage and income transcript. A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498 and IRA contribution information. Taxpayers can use the information from the transcript to file their tax return.

Other non-filing years matter: While you're at it, you also might want to look at other tax years when you didn't file.

The IRS notes that if you're claiming your 2016 tax refund, that amount may be held if you haven't filed tax returns for 2017 and 2018.

Also be aware of any other amounts you currently owe the IRS, other federal programs or state agencies. Your 2016 tax refund may be used to offset unpaid child support or past due federal debts, such as student loans.

On the other hand, however, you also might be due refunds for the 2017 and 2018 tax years, too.

Don't forget the EITC: In finally filing your 2016 return, make sure you get the most of any possible refund. That means double-checking your eligibility that tax year to claim the Earned Income Tax Credit (EITC).

This tax credit — which reduces any taxes you owe dollar-for-dollar and is refundable, meaning you'll get money back even if you don't owe taxes — is available to lower- and middle-income taxpayers. However, the IRS says that every year millions of taxpayers overlook this valuable tax break.

For the 2016 tax year, the EITC was worth a maximum $6,269. Even if you don't qualify for that amount, it still could be worth claiming as long as your 2016 income met the EITC earnings thresholds. That tax year they were:

• $47,955 ($53,505 if married filing jointly) for those with three or more qualifying children;
• $44,648 ($50,198 if married filing jointly) for people with two qualifying children;
• $39,296 ($44,846 if married filing jointly) for those with one qualifying child, and;
• $14,880 ($20,430 if married filing jointly) for people without qualifying children.

If your income and family circumstances in 2016 allow you to claim the EITC, be sure to download IRS material related to the credit back then, too.

Don't forget state taxes: Most U.S. taxpayers live in states that also collect income taxes.

That means chances are good that a large percentage of folks who didn't file a federal return in 2016 also overlooked their state returns that year, since state and federal filings typically are connected.

Check with your state tax department about what you need to do about any old unfiled tax return at that level. It might could get you even more refund money.

Why to file now: Right about now, having read this far and still frustrated by this extended 2020 tax season, you're probably asking whether it's worth your time and effort to also mess with a 3-year-old tax return.

My personal answer is yes, it's always worth getting some unexpected money. And it's doubly worth it to keep it from simply reverting back to Uncle Sam.

And the unclaimed amounts could be especially welcome if you've lost income due to your job's closure during the COVID-19 pandemic.

Available refund amounts: Just how much per person are we talking in 2016 refunds? The IRS estimates the midpoint for the potential refunds for 2016 to be $861. That means that half of the old unclaimed refunds are more than $861 and half are less. And in some cases, the amounts are much more.

In fact, residents in 16 jurisdictions (15 states and Washington, D.C.) see their median mark topping $900. They are:

And even the smallest median refund amount, $727 in Idaho, is nothing to sneeze at.

You can see exactly where your state stands in the ol' blog's special web page showing the state-by-state breakout of 2016 tax year unclaimed refunds.

No penalties for refund claims: Finally, if you're concerned about facing IRS wrath for not filing back in 2016, don't worry. There's no penalty for filing late when you're getting back overpaid taxes.

Annual unclaimed refund issue: As I mentioned earlier, unclaimed tax refunds are common. I've been writing about this tax phenomenon as long as I've been blogging.

You can see what the numbers were in prior years in my previous posts on nonfilers due refunds —

• 2019 in conjunction with unfiled 2015 returns; 
• 2018 in connection with unfiled 2014 returns;
• 2017 in connection with unfiled 2013 returns;
• 2016 in connection with unfiled 2012 returns;
• 2015 in connection with unfiled 2011 returns;
• 2014 in connection with unfiled 2010 returns;
• 2013 in connection with unfiled 2009 returns;
• 2012 in connection with unfiled 2008 returns;
• 2011 in connection with unfiled 2007 returns;
• 2010 in connection with unfiled 2006 returns;
• 2009 in connection with unfiled 2005 returns;
• 2008 in connection with unfiled 2004 returns;
• 2007 in connection with unfiled 2003 returns; and
• 2006 in connection with unfiled 2002 returns.

You also might find these refund-related posts of interest:

• What to do if your tax refund is wrong
• Where's your tax refund? Use IRS online tool to find out  
• Tax refunds are nice, but savings provide a better payoff

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