Laura Schultz was expecting to hear from the IRS. After all, the Denver-area house cleaner owed the IRS about $80. But when she opened up a letter from the IRS, it wasn’t quite was she was expecting: a refund check for $122,783.51.
Schultz felt that it was a mistake – and it was. She called the IRS and they told her to destroy the check, which she did.
Of course, I know what you’re thinking: why didn’t she just keep the check? Because she knew better. I’ve gotten this call more than once from a client. The IRS always figures it out eventually (it’s pretty hard to misplace more than $100,000 for long) and you’re then stuck with repaying the principal plus interest. And trust me, that’s not a letter that you want to get…
Are you looking for a little extra cash this summer! The IRS recently issued a reminder about unclaimed refunds… does one belong to you? Earlier this year, the IRS announced that unclaimed refunds for 2005 (the last year for which you could claim a refund as of tax day, 2009) totaled approximately $1.3 billion – yes, with a b. The average unclaimed refund was just under $600, with the highest amounts attributable to members of the armed forces.
To qualify for a refund, you have to file. I know this seems apparent but I am constantly surprised at how many taxpayers think they “might” be owed a refund and aren’t sure how to figure out whether that’s true. The answer is very simple: file.
There are restrictions, however, on filing for a refund. What’s good for the goose… well, you know the saying. While it’s true that if you don’t file and you owe money, the statute of limitations never runs, the opposite is not true if you don’t file and are owed money. The statute begins to run for refunds as of the due date of the return: you have three years to claim your refund. If you don’t claim it, you lose it forever.
If you’ve filed for a refund and never received it (a la Obama protocol nominee Capricia Penavic Marshall who apparently never noticed that her $37,000 refund didn’t arrive), you should contact confirm your mailing address with the IRS. If you don’t opt for direct deposit, the IRS will send your refund check to your last known address. To change the address that the IRS has on file for you, file form 8822, Change of Address (available here as a pdf download or call 800-829-3676). If all else fails, give the IRS a call at 800-829-1040 to check the status of your refund.
Remember, refunds are your money. What are you waiting for?
North Carolina is running out of cash. Of course, they’re not the first state to report economic woes: California has been making news for months with its deficit and New Jersey has just announced lower than expected revenues. With cuts at the federal level and revenues down due to increased layoffs, many states are facing increasing budget shortages.
What’s a state to do? Delay income tax refunds. North Carolina has announced that it will delay income tax refunds by about four weeks as they scramble to find cash to give to taxpayers. These four weeks are on top of the regular processing time. In fact, the NC state Revenue Department is warning that some returns may take as long as 12 weeks to process. Twelve weeks!
Secretary of Revenue Ken Lay (are you kidding me, NC?) assures the state that “everyone who is due a refund will get a refund.” You might just have to wait for it. And since NC state law requires that interest start running in June for delayed refunds, the state is hustling to get out as many refunds as possible, but it’s proving to be difficult: tax collections in NC are down by about $1 billion from last year.
So, since revenues are down and cash is scarce, taxpayers in NC who are owed refunds will just have to wait. But there is a lesson to be learned here, folks: you should not rely on your tax refund. With a little planning, you can have your money in your wallet all year long instead of waiting anxiously for your refund check. Remember, refunds are interest free loans to the government. You can do better!
Taxpayer asks:
What about a taxpayer who owes the IRS $$$ from previous tax years? Should they adjust their W-4 to have more taxes taken out to cover the Making Work Pay credit that will be on their paychecks?
Taxgirl says:
It depends. The Making Work Pay Credit is refundable, so to the extent that the withholding results in an overpayment at the end of the year, taxpayer would be entitled to a refund. The refund would, of course, be offset if there are existing tax liabilities. If withholding is adjusted to ensure that there’s no refund, then the refund would not be used to satisfy the existing tax liabilities.
Of course, that doesn’t change the outstanding liability. I often recommend that taxpayers with outstanding liabilities who receive a refund at the end of the year not alter their withholding. Most taxpayers don’t notice the few extra dollars each week and the refund helps pay down the liability. Most taxpayers in that situation wouldn’t save on their own in order to pay it down, so this “forced savings” can be a good thing.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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