The IRS reports $1 billion in unclaimed refunds each year. Every time I read that number I am astounded. I would venture to say that most people don’t intentionally leave money on table when it comes to their tax refund but the numbers suggest otherwise. You might be thinking that the amount of these individual unclaimed refunds is so miniscule that people just don’t bother. You know; more hassle than it’s worth. However the IRS estimates that approximately 50% of the unclaimed refunds are for amounts greater than $600. I think most taxpayers would agree that is an amount worth the effort of collecting and would prefer to have the extra $600 in their pocket rather than ‘gifting’ it to Uncle Sam.

Unclaimed tax refunds

Unclaimed refunds

So how does $1 billion in unclaimed tax refunds happen? It seems that many of the unclaimed refunds are the result of a tax credit that can only be refunded when a tax return is filed. In these situations taxpayers believe they are not required to file a return but don’t realize that by doing so they would actually receive a refund. Here are a few scenarios that may make filing a return advantageous when it otherwise would not be required.

  • Earned Income Tax Credit (EITC) – An EITC is a credit for lower-income taxpayers. If a taxpayer worked and earned less than $52,427 last year, they could receive the EITC as a refund if qualified with or without a child. The credit can be as much $6,143 and is fully refundable. This is a very worthwhile credit, but a return must be filed to claim the credit.
  • Child Tax Credit – If a taxpayer has at least one child under the age of 17 they probably qualify for the Child Tax Credit. Generally, this credit can only be used to reduce taxes owed and is non-refundable. However, if the taxpayer works, their income is low to moderate and the full credit amount is not used to offset taxes, a portion of the $1,000 per child credit may be refundable.
  • American Opportunity Tax Credit (AOTC) – The AOTC is available for four years of post-secondary education expenses and can result in a credit of up to $2,500 per eligible student. To be eligible the student must be enrolled at least half-time for at least one academic period during the year. Up to 40% of the credit is refundable. And once again, even if the taxpayer doesn’t owe any taxes, they may still qualify for the credit. But a return must be filed.
  • Premium Tax Credit (PTC) – If a taxpayer acquired their health insurance last year through a government marketplace, they may qualify for an insurance subsidy in the form of the PTC. You guessed it; you have to file a return to get the credit.
  • Over-Withholding – An employer may have withheld more than is owed, as withholding is not an exact science. But a return must be filed to get the excess back.

If you believe that some of that $1 billion in unclaimed refunds may be yours, you should know that the statute of limitations for a refund is 3 years from the unextended due date of the return. Make sure time doesn’t run out and file before the statute expires. For example, to claim a refund for a 2012 return you will need to file the 2012 return no later than April 15, 2016, or the refund is gone forever.

If you have any questions about tax credits or claiming past refunds please contact me for assistance so you can get the refunds you are entitled to.

Randy Randy J. Elder, CPA, P.C.

With nearly three decades of professional experience in public accounting, Randy provides his tax and accounting expertise to new and small businesses in a casual and friendly environment. Before founding Randy J. Elder, CPA, P.C., he held various positions with an international accounting firm, and with regional and local CPA firms. Randy earned his Arizona CPA license in 1988, and holds a Bachelor of Science degree in Accountancy from Northern Arizona University.

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