Unclaimed Tax Refunds

Tax refunds occur when taxpayers overpay their taxes throughout the year or qualify for specific credits and deductions like the Earned Income Tax Credit (EITC), leading to receiving money back from the government.

Despite the financial benefits, millions of dollars in federal and state tax refunds go unclaimed every year. For tax year 2020 alone, the IRS announced that almost 940,000 people had unclaimed refunds, totaling over $1 billion. The IRS estimates the median refund for 2020 was about $932, excluding additional credits like the Recovery Rebate Credit.

Understanding the importance and potential impact of these unclaimed refunds is essential for taxpayers. Unclaimed refunds not only represent missed financial opportunities but also relinquish money to the U.S. Treasury if not claimed within a specific timeframe.

Understanding tax refund eligibility

Who qualifies for a tax refund?

Eligibility for tax refunds hinges on several factors, including income level, tax payments made throughout the year, and applicable tax credits or deductions.

Income level and overpayment

Overpayment often results from having excessive tax withholding from paychecks or from making higher-than-necessary estimated tax payments, which is common among self-employed individuals. For example, if you’re self-employed and overestimate your quarterly tax payments, you might receive a refund when you file your annual return.

Refundable credits

Refundable credits can also lead to tax refunds. Some of the most significant refundable credits include:

1. Earned Income Tax Credit (EITC): The EITC targets low to moderate-income workers, potentially reducing their tax liability to below zero, resulting in a refund. For example, a family with an income below $57,414 (for tax year 2023) might be eligible for this credit

2. Child tax credits: Worth up to $2,000 per dependent child, this credit can significantly reduce the amount of tax owed and possibly generate a refund if your tax liability is less than the credit amount.

3. American Opportunity Tax Credit (AOTC): This credit helps offset higher education costs up to $2,500 per eligible student. Even if you don’t owe taxes, up to 40% of the AOTC is refundable, potentially leading to a $1,000 refund.

4. Premium tax credit: This credit, aimed at low to moderate-income households, reduces the cost of health insurance premiums. If the advance payments of this credit don’t cover the entire eligible amount, taxpayers may receive the leftover as a refund.

Tracking your tax refund

Federal refunds

The “Where’s My Refund?” tool on the IRS website lets taxpayers check the status of their federal refund 24 hours after the IRS has received their e-filed return. To use “Where’s My Refund?”, you must provide your Social Security number or Individual Taxpayer Identification Number (ITIN), your filing status, and the exact whole dollar amount of your expected refund from your initial tax filing.

Once the IRS has acknowledged receipt of your return, you can expect to see refund status information within:

1. 24 hours after filing an e-filed tax year 2023 return.
2. 3 to 4 days after filing an e-filed tax year 2022 or 2021 return.
3. 4 weeks after mailing a paper return.

The IRS also provides a mobile app, IRS2Go, to track your refund status on the go. Remember, the IRS updates the status information once a day, usually overnight, so checking more frequently won’t provide new information.

State refunds

States offer their own tools and resources for refund tracking. For example, Illinois has a portal that can be accessed here: https://mytax.illinois.gov, and Iowa offers their tool here: https://tax.iowa.gov. Generally, you will need your Social Security number or individual taxpayer ID number, the filing status from your return, and the exact refund amount requested on your return. Search for your state’s specific tax authority website to find the correct tool.

LEARN MORE: Search our database of guides on how to find unclaimed money in each state.

Alternative ways

For those without internet access, the IRS provides automated refund hotlines at 1-800-829-1954 for current-year refunds and 866-464-2050 for amended returns. When calling, you’ll need to provide your Social Security number or ITIN and the exact amount of your expected refund. This service offers updated information 24 hours a day, seven days a week, which can save you the wait times associated with speaking to an IRS representative.

Important tips for tracking tax refunds

1. Ensure all inputs are correct: Social Security number or ITIN, filing status, and exact refund amount.
2. Use online tracking tools or automated phone systems to get the latest information.
3. Check once daily to avoid redundancy, as updates occur overnight.
4. For amended returns, be aware that it might take up to 16 weeks for the processing and reflection in the system.
5. Explore state-specific tracking tools for state refund statuses.

Reasons for unclaimed refunds

Unfiled returns

One primary reason for unfiled returns is that some individuals may not be required to file due to low income but are still entitled to refunds.

Undelivered checks

Refunds can go unclaimed when checks are returned to the IRS due to incorrect mailing addresses. These include situations where people have moved after filing their returns and did not update their address with the IRS or USPS. If you have received a CP237A notice from the IRS, it indicates that your tax refund check was never deposited. To claim it, you need to contact the IRS.

Filing past due dates

To claim refunds from previous years, taxpayers need to file their past due tax returns within three years of the original due date. According to the IRS, if the returns are not filed within this three-year window, the refunds become the property of the U.S. Treasury and cannot be reclaimed. Filing within this period is critical to ensuring you receive any refunds you are entitled to.

Deceased taxpayer

Refunds due to deceased relatives require specific procedures and legal considerations. In such cases, the IRS allows heirs to claim the refunds of deceased taxpayers by submitting forms like Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer.

Key deadlines and legal considerations

Critical filing deadlines

The IRS mandates a three-year window from the original due date of a tax return for taxpayers to file for tax refunds. This period is known as the Refund Statute Expiration Date (RSED). Failing to file within this period means forfeiting the claim to the refund, and the funds will revert to the U.S. Treasury.

In addition to the three-year window, there’s also a two-year window from the date the tax was paid. If a taxpayer files a claim after the three-year period but within two years from when the tax was paid, the refund or credit is limited to the amount of tax paid within those two years. It’s essential to adhere to these deadlines to prevent the disappointment and financial loss of a missed refund opportunity.

State-specific deadlines

State tax agencies set their own deadlines for filing refund claims, and these can vary significantly. For example, California typically requires refund claims to be filed within four years from the original due date or one year from the date of overpayment, whichever is later.

Find out if you have unclaimed money in California.

On the other hand, New York allows taxpayers to file for a refund within three years from the date the original return was filed or two years from the date the tax was paid, mirroring federal rules closely.

Find out if you have unclaimed money in New York.

Claiming tax refunds requires timely actions. Staying informed about refund status and utilizing IRS and state resources are pivotal steps to ensure one receives due refunds. Using tools like the IRS’s “Where’s My Refund?” for federal returns and state-specific portals for state refunds can ensure taxpayers always know the status of their money.