The IRS is reminding taxpayers who have not filed their 2020 returns to do so quickly or risk losing out on unclaimed refunds.
Nearly 940,000 Americans have unclaimed refunds from the 2020 tax year worth an estimated $1 billion, the IRS said on March 25. The individuals face a May 17 deadline to submit their returns.
The median refund is $932. American citizens typically have up to three years to file and claim refunds, after which the money goes to the U.S. Treasury.
Since taxpayers may find it difficult to gather information necessary to file returns for 2020, the IRS outlined three ways to access such information:
- Taxpayers who are missing their W-2, 1098, 1099, or 5498 forms can request copies from their employer, bank, or other payers.
- Those who are unable to get these forms from employers, banks, or other payers can order a free wage and income transcript at IRS.gov using the agency’s online tool. The agency noted that this will be the quickest and easiest option for many individuals.
- A third way is for the individual to file a 4506-T form with the IRS, requesting a “wage and income transcript.” Taxpayers can then use information to file their returns. The agency warned that written requests for such transcripts can take several weeks. As such, taxpayers are encouraged to try out other options first.
Usually, the deadline to claim old refunds is around the regular tax deadline, which is April 15 this year. The three-year window for the 2020 returns had been extended to May 17 due to the COVID-19 pandemic.
“We want taxpayers to claim these refunds, but time is running out for people who may have overlooked or forgotten about these refunds. There’s a May 17 deadline to file these returns so taxpayers should start soon to make sure they don’t miss out,” said IRS Commissioner Danny Werfel.
Since taxpayers faced “extremely unusual situations” during the pandemic, some of them may have forgotten about a potential refund on their 2020 returns, he stated.
“People may have just overlooked these, including students, part-time workers, and others. Some people may not realize they may be owed a refund. We encourage people to review their files and start gathering records now.”
In addition to missing out on refunds, failure to file the 2020 return could also result in some taxpayers losing out on the earned income tax credit, which was worth as much as $6,600 in 2020.
“The IRS reminds taxpayers seeking a 2020 tax refund that their funds may be held if they have not filed tax returns for 2021 and 2022,” the agency said.
“In addition, any refund amount for 2020 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.”
The state with the highest number of individuals estimated to have 2020 refunds due was Texas, with 93,400 taxpayers. This was followed by California with 88,200; Florida with 53,200; and New York with 51,400.
Processing Refunds
The IRS usually takes up to 21 days to process refunds for returns filed electronically. It can take four weeks or more if traditional mail was used. The processing time can be extended in case the returns require extra review or corrections. The fastest way to get refunds is through direct deposit.
In certain cases, taxpayers may not receive the refund amount they were expecting. This could be due to the agency identifying errors on tax returns, or if the refund was used to pay off certain state or federal debts owed, or if the refund from a joint return was used to pay off a spouse’s debts.
In case of errors corrected by the IRS, the agency will send a notice to the taxpayer clarifying the changes.
Tax refunds are critical for many American households as they represent the largest annual cash injection into their budgets. Many families use the refunds to boost their savings or cut down debts.
According to a January survey conducted by Credit Karma, 37 percent of taxpayers who expect to receive a refund plan on using some or all of the money to pay for necessities. Over half of the respondents said they were looking to file their taxes early to get faster refunds.
Thirty-one percent of taxpayers surveyed said they would need their refund to make ends meet.
“That number jumps to 40 percent for millennials and 38 percent for Gen Z taxpayers,” the survey report stated.
In addition to encouraging 2020 tax year nonfilers to file their returns, the IRS has launched an effort to identify high-income taxpayers who have not filed their income taxes since 2017. Over 125,000 such instances have been identified, with taxes being owed in many of these cases.
The initiative was launched late last month, with the agency sending compliance letters to these 125,000 taxpayers.
“The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021,” the agency stated.
Mr. Werfel said that if someone hasn’t filed a tax return in recent years, “this is the time to review their situation and make it right. … For those who owe, the risk will just grow over time as will the potential for penalties and interest. These non-filers should review information on IRS.gov that can help and consider talking to a trusted tax professional as soon as possible.”
