Please ensure Javascript is enabled for purposes of website accessibility

This Mistake Is Costing Taxpayers $1.4 Billion in Refunds

By Maurie Backman – Mar 21, 2019 at 5:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are you leaving money on the table?

Not all taxpayers are required to submit a return. If your income is low enough, the IRS doesn't mandate that you file one.

But that doesn't mean it wouldn't pay to submit a return nonetheless. If you do file a return, you might manage to make some money from it if you wind up eligible for refundable tax credits that pay you back, even when your tax liability would otherwise be $0.

In fact, it's estimated that taxpayers are owed a whopping $1.4 billion in refunds from the 2016 filing season. The reason likely stems from the fact that filers who were eligible for valuable tax credits didn't submit their 2015 returns, and as such, are currently running the risk that that money will be lost forever. If you were a lower earner back in 2015 and therefore didn't file a tax return, now's the time to revisit that situation -- before it's too late.

Man smacking his head with mouth agape

Image source: Getty Images.

Don't wait to claim what's yours

If you don't file a tax return but are owed money, the IRS has no way of knowing what to pay you. That's why filing a return when you aren't required to is generally a good idea, and the reason largely boils down to a valuable tax break called the Earned Income Tax Credit, or EITC.

The EITC is designed to help low-income households. Eligibility depends on your income combined with your filing status and the number of children in your household, but to give you an idea, for the 2018 tax year, you can claim the credit as a married couple filing jointly if you have no children but earn $20,950 or less. The more children you have, the higher the income threshold for EITC eligibility climbs.

Furthermore, because the EITC is a completely refundable tax credit, claiming it could put serious money back in your pocket. Back in 2015, the EITC was worth a maximum of $6,242. To snag that, you'd need three or more children to claim on your return for that year. But if you didn't file a tax return for that year and think you were actually entitled to the EITC, it absolutely pays to make up for lost time.

But don't wait. The IRS gives you three years from a given tax year's filing deadline to get that return submitted. This means that you have until mid-April of 2019 to file your 2015 tax return, which was due in April of 2016. That might sound confusing, but remember, you always file tax returns for a given year after that year has passed. Keep in mind that there's no penalty for filing a late return if the IRS owes you a refund, so if your earnings were low enough to avoid filing in the first place back in 2015, you really have nothing to lose by getting that return together and seeing what it does for your wallet.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.