According to an IRS news release, the IRS estimates that it holds approximately $1 billion in unclaimed federal tax refunds from tax year 2011. The IRS generally allows a three-year period to file and claim any unclaimed federal refunds, so without any action taken by April 15th of 2015, that money will be returned to the Treasury. Unfortunately, it is also likely that low-income families who have the greatest need for this money are the ones leaving the most of it on the table.
The average estimated unclaimed refund is $698, spread over an estimated 1.1 million taxpayers. The IRS has a list on their website categorizing the estimated number of taxpayers who are owed refunds and the average unclaimed refund amount by state, ranging from $835 in Wyoming to $595 in Idaho and North Carolina.
There are two major sources of the unclaimed refunds, according to the IRS: those who did not file a return at all thinking they did not make enough money to allow for a refund, and those who filed a return but did not claim major tax benefits that were due to them — especially the Earned Income Tax Credit (EITC).
The EITC is one of the refundable tax credits, meaning that if you qualify, you are entitled to a refund even if you owe no taxes. In essence, the government is giving you money if you realize that it is there for the taking.
If you want to claim any of these tax benefits, you first have to make sure that you are entitled to them, which means going over your old tax information. We understand that spending a lovely spring day going over old tax information is not appealing, but given a potential payoff of hundreds of dollars, the prospect starts to sound a little better.
Next, check the IRS rules to see if you qualify for any credits. Remember that you are filing for 2011; make sure that you are evaluating everything based on the income limits and rules for that year and not for tax year 2014.
For tax year 2011, the upper income limits for the EITC were $13,660 with no qualifying children, scaling up to $43,998 with three or more qualifying children. To find out if you meet all qualifications, check at http://www.irs.gov/uac/Earned-Income-Tax-Credit-for-2011;-Do-I-qualify%3F.
While the EITC is the most likely source of unclaimed refunds, do not forget to check your eligibility for other refundable tax credits such as the Child Care Credit, the Child and Dependent Care Credit, the Retirement Savings Contributions Credit and the American Opportunity Credit for educational purposes. Many of these refundable credits are also targeted at low-income taxpayers. You may find more than one credit that you previously missed.
Assuming you qualify, you will need to file a return for that year, either a new one or an amended one if you previously filed a 2011 return. You still need to provide the same documentation (W-2’s, 1099’s and receipts) that you normally provide with a tax return. The documentation criteria may trip up most potential claimants, especially if you never filed a 2011 return. You are less likely to keep all of your tax documentation for a year in which you filed no taxes.
As much fun as it is to blame the IRS for problems, it is a bit much to ask the IRS to send you a refund even when you don’t bother to claim it. There is little excuse for not taking advantage of these refunds — especially if you are a lower-income taxpayer in need of extra funds.