Don't Mess With Taxes

Collecting a refund is one of the reasons cited in my post on why you might want to file a tax return even if you aren’t legally required to do so. It always generates a lot of comments, with people baffled as to why someone would just let Uncle Sam hang onto their tax refund.

There are some reasons people don’t file their taxes even when it to their benefit, some better than others. More on this later.

But regardless of why, every year the Internal Revenue Service reminds a portion of these nonfilers that if they don’t act soon, they’ll forfeit their refunds.

That could happen this year to more than 1.1 million people across the nation who didn’t claim their tax year 2021 refunds.

U.S. tax law says that if you don’t claim the money within three years, it stays in the U.S. Treasury. The original filing date for those unfiled 2021 tax year 1040s and associated unclaimed refunds was April 15, 2022.

So, the three-year claim-or-surrender deadline is this year’s Tax Day, April 15.

More than $1 billion waiting to be claimed: The total of all these three-year-old unclaimed refunds is more than $1 billion. The IRS estimates the median refund amount is $781, meaning half of them are more than $781 and half are less.

Residents of four states have even larger median missed 2021 refunds. They are —

• 27,000 nonfilers in Massachusetts with its $935 median missed refund;
• 73,000 in New York looking at a $995 median amount;
• 53,100 Pennsylvania nonfilers due a potential $993 median refund; and
• 3,600 residents of Rhode Island whose three-year-old unclaimed median refund is $946.

You can check out how the unclaimed refunds are distributed across the United States in the IRS’ announcement.

Old tax breaks could mean more money: But wait! There could be even more money!

The amount of money that some late filers might get could be larger if in 2021 they also were eligible for valuable tax breaks, like the Earned Income Tax Credit (EITC).

The EITC is available to lower- and moderate-income workers. For 2021, the EITC was worth as much as $6,728 for taxpayers with qualifying children.

In addition to filing status, the available EITC is based on income thresholds. The maximum EITC maximum income amounts for families in 2021 were —

• $51,464 ($57,414 if married filing jointly) for those with three or more qualifying children;
• $47,915 ($53,865 if married filing jointly) for people with two qualifying children;
• $42,158 ($48,108 if married filing jointly) for those with one qualifying child, and;
• $21,430 ($27,380 if married filing jointly) for people without qualifying children.

If you were eligible for the EITC in 2021 based on your income show above, you could have received a substantial credit amount based on your family size. The maximum EITC in that tax year were —

• $6,728 for taxpayers filing jointly who have three or more qualifying children,
• $5,980 with two qualifying children, and
• $3,618 with one qualifying child.

The EITC was especially valuable back then for single filers with no children, thanks to a COVID-19 pandemic prompted change in the American Rescue Plan Act (ARPA). For 2021, eligible child-free taxpayers could get a maximum EITC of up to $1,502. That temporary ARPA maximum EITC was substantially more than the $543 available before the coronavirus change.

So, when you do file that 2021 tax year return by April 15 this year, check out the possibility that you also can claim the EITC for that year.

Getting the correct old forms: You can find current and prior year tax forms and instructions, such as the ones needed to file a 2021 return, at the IRS.gov Forms, instructions & publications page.

If you prefer, you also can request the old form by calling toll-free (800) TAX-FORM, which is (800) 829-3676.

The IRS also points out that taxpayers seeking a 2021 tax refund might have trouble getting that three-year-old refund if they also neglected to file returns sin 2022 and 2023. Check all your filing records and make sure you’re up to date so that you can get your unclaimed money.

Also, any refund amount for 2021 will be applied to amounts still owed to the IRS or a state tax agency, and may be used to offset unpaid child support or other past due federal debts such as student loans.

How to file a 2021 tax return: You have several options in filing and claiming your 2021 refund. But, notes the IRS, you should start the process now to make sure you have enough time to file before the April 15 deadline.

Again, there’s no extension period for filing old returns to claim a refund. If you don’t do so by the three-year time limit, you lose your money.

To ensure that doesn’t happen, the IRS recommends the following filing options.

• Create or log in to IRS Individual Online Account. This will allow you to view, download, or print your tax records and transcripts needed to file. You also can find transcripts of past tax returns, tax account information, wage and income statements, and verification of non-filing letters. You can create or log in to your Individual Online Account at IRS.gov.
• Request copies of key documents. If you’re missing Forms W-2, 1098, 1099, or 5498 for the years 2021, 2022 or 2023, you can request copies from your employer, bank, or other payers.
• Get a tax transcript by mail. If you’re unable to get those missing forms from employers or other payers, and cannot access your online taxpayer account, you can get a tax return or tax account transcript mailed to you by using Get Transcript by Mail on IRS.gov. You can also request a transcript be mailed to you by calling the automated phone transcript service at (800) 908-9946.
• Request a wage and income transcript. Another option is to file Form 4506-T with the IRS to request a wage and income transcript. This transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498, and IRA contribution information. You can use the information from the wage and income transcript to file your old tax return. Again, if you need to do this, do it now. The IRS says written requests can take several weeks, so check out the other electronic or phone options first.

Don't forget state taxes: Most Americans live in states that also collect income taxes. So, chances are that many of the 1.1 million people who didn’t file a federal return also neglected filing at the state level, too.

That could mean they also might have unclaimed state refund money.

If you’re one of the nonfilers of a 2021 federal Form 1040, check with your state tax department about taking care of that year’s corresponding state responsibility as soon as possible.

Even if you don’t get a refund, it’s always good to be on the up-and-up with any and every tax collector.

Now or never, whatever the reason: As noted earlier, these old, unclaimed tax refunds are an annual occurrence. And as also mentioned, 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. In both of these cases, these folks aren't in the main, traditional job earning pools, so filing is not necessarily routine for them.

Others know they are due a refund, but for some crazy reason (yes, I am judging!) think the amount is too small to mess with filing a 1040. If that's you, we need to talk.

And some people don't even know they might be due a refund.

Whatever the reason, the IRS isn’t worrying about the whys and why-nots. It is simply alerting these filers so that they can get their tax year 2021 money.

If that’s you, get to work filing that old Form 1040 and collect your money, before it's too late.

You also might find these items of interest:

• 7 tips for first-time tax return filers
• 6 tax credits for lower-to-middle income taxpayers
• Don't overlook the EITC, which could be worth thousands

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