Failure to file tax returns in some cases means the government eventually gets to keep the change. What happens when taxpayers who are due a tax refund do not ask for it?
Each year, a certain portion of the population does not file a tax return. For the tax year 2016, the
Internal Revenue Services (IRS) estimates about 1.4 million people did not file returns to collect about $1.5 billion in tax refunds that were owed them.
The window to collect refunds due in 2016 closed on July 15, 2020, after being extended by the IRS from April 2020, due to the pandemic. At the time, IRS Commissioner Chuck Rettig noted, “The IRS wants to help taxpayers who are owed refunds but haven't filed their 2016 tax returns yet. 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.”
While taxpayers may fear a penalty, or IRS audit if they file returns that are due a refund, there is actually no penalty for filing a tax return late if a tax return is due. It remains true though that a refund check can be held if returns have not been filed in successive years. In addition, if there are taxes owed to state or federal agencies or for federal student loans or child support—the refund will be applied there first.
In 2016, the Earned Income Tax Credit (EITC) helped moderate- and lower-income families by providing additional money in addition to a refund on taxes paid. Without filing for it, the EITC stays off the table as a potential credit that could have boosted the amount of a tax refund check.
The IRS estimated that the mid-point for refunds that were owed to taxpayers in 2016 was about $861. About half of the refunds were above that amount and half were below. Each year taxpayers have three years to file for their refund before that particular window of opportunity closes.
And what happens to the unclaimed money paid into the federal government but not reclaimed by way of a tax return? The money becomes the property of the US Treasury.
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