Each year, about 80% of the almost 150 million total tax filers get a refund.
Millions of these taxpayers are surprised when their refund is less than expected, delayed or never comes at all. Here are some of the common reasons why the IRS changes, holds or takes refunds.
THE IRS PUTS YOUR REFUND TOWARD A BALANCE YOU OWE
Currently, more than 17 million taxpayers owe the IRS. Confiscating refunds is the easiest way for the IRS to collect this money. The IRS will take your refunds going forward until the amount is paid. In general, the IRS can take refunds for 10 years after you originally owed the tax.
THE IRS PUTS YOUR REFUND TOWARDS A SPOUSE’S TAX BILL
If you file jointly with a spouse who owes tax (or other debt the IRS is required to collect, such as child support or student loan debt), the IRS will use your joint refund to pay the amount owed. If you don’t want your portion of the refund to pay your spouse’s debt, you may qualify to file an injured spouse relief form (Form 8379) with the IRS (“injured” does not mean physically injured). The IRS will send back your share of the refund about three months after you file the form. To avoid surprises like this, it’s beneficial to get to know your spouse’s (or future spouse’s) financial situation.
THERE COULD BE AN ERROR ON YOUR RETURN OR THE IRS REQUIRES MORE INFORMATION
The IRS often holds refunds when there are credits on the tax return that increase a taxpayer’s refund. Common examples are the Earned Income Tax Credit or the Child Tax Credit. The IRS may also hold your refund if you’re under audit and will owe taxes. If the IRS holds your refund, you’ll receive notices from the IRS requesting more information. Make sure you respond by the deadline, or the IRS will assume that the refund amount on your filed tax return was wrong.
THE IRS CHANGED YOUR REFUND BECAUSE OF A DEPENDENT DISCREPANCY
In this scenario, you either provided the wrong dependent information, or, more likely, someone else is using the dependent on his or her return (perhaps an ex-spouse). The IRS will contact you and the other taxpayer to ask questions about who is eligible to claim the dependent. The IRS will also ask for supporting documentation, such as proof that the dependent lived with a certain taxpayer during the year.
THE IRS REJECTED YOUR RETURN, AND YOU HAVEN’T REFILED
This happens all too often for taxpayers who file their own returns. In this case, the answer is simple: Make the corrections and refile.
If you don’t receive your expected refund in three weeks of the date of filing, you should investigate why. Call your tax professional, who can get to the bottom of it. If you have not already done so, you will need to give your tax professional the authority to speak on your behalf with the IRS.
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