Over the past several months, COVID-19 has caused tremendous mental, physical, and financial disruptions such that the President declared a National Disaster. To alleviate some of the pressures placed on taxpayers facing an April 15th tax filing deadline, the U.S. Treasury Department and Internal Revenue Service extended the 2019 tax filing and request for automatic extension deadlines to July 15, 2020.
The extended filing deadline relieved some of the stress that accompanied the current year’s tax filings, which were complicated by the pandemic. Additionally, the time to claim refunds for tax year 2016 was extended. Generally, IRS regulations require taxpayers, who are due a federal refund for withholding or estimated taxes, to file a return to claim the refund within 3 years of the return due date or forfeit their refunds to the U.S. Treasury. The three-year deadline to claim 2016 refunds was automatically extended to July 15, 2020, affording taxpayers an extra 3 months to collect monies due to them.
Once the three-year window closes for a specific year, generally, the IRS will no longer issue refunds for that year nor will they apply any credits from that year, including overpayments of estimated or withholding taxes, to other tax years that are underpaid or outstanding. However, there is the ability for a taxpayer to file a claim for refund, when payments were made within the prior two-year period. The IRS estimates show that approximately 1.2 million taxpayers did not file 2015 returns by the April 15, 2019 three-year deadline, forfeiting an astonishing $1.4 billion in unclaimed refunds with a median per person refund of $879.[1]
While collecting refunds due for past years can be especially beneficial for taxpayers who have experienced pay cuts or loss of income due to the current pandemic, there are other significant reasons for keeping your tax filings up to date. For taxpayers who are self-employed, earned income for unfiled tax years is not reported to the Social Security Administration and can greatly reduce retirement and disability benefits for which you may become eligible. Unfiled tax returns also hamper the ability to apply for personal and business loans, refinance mortgages, and render a person ineligible for federal aid programs for college and higher education expenses.
If you currently have unfiled prior year tax returns and owe money for these years, becoming current is of equal, if not greater, importance. Individuals and businesses that owe back taxes can face serious and significant consequences. Filing back year tax returns and becoming current can reduce the interest charges and late payment penalties being assessed by the IRS, which continue to accrue until the balances are fully paid. If you do not have the means or ability to pay the full the amounts owed, the IRS offers numerous repayment options and programs, which help mitigate balances due for those who qualify.
Does the IRS owe you money in the form of a tax refund for 2016? The window is closing on your time to file and collect! Do you have unfiled tax returns or prior year liabilities due to a federal or state tax agency? Contact our tax professionals at IRSTaxHelp@pragermetis.com to assist you in determining your best options for addressing these issues.
[1] IRS.gov, “IRS: Refunds of $1.4 billion waiting to be claimed by individuals who have not filed federal income tax returns for 2015,” March 13, 2019, https://www.irs.gov/newsroom/irs-refunds-of-1-4-billion-waiting-to-be-claimed-by-individuals-who-have-not-filed-federal-income-tax-returns-for-2015
