On Friday, the Internal Revenue Service (IRS) sent a gentle reminder to the nearly 40 million taxpayers who have yet to file their tax returns: do it now. Many people consider their tax refunds to be a sort of annual bonus. Here are the top 6 reasons why the IRS may keep your tax refund.
You owe taxes from previous years
If you owe taxes for previous years, the IRS will automatically apply your refund against the taxes you owe. You will receive a notice of intent to levy in the mail. If your refund is larger than your total tax liability, then you will receive a refund for the amount of the difference.
You haven’t filed all of your returns
If you haven’t filed returns for a previous year, the IRS may keep your tax refund until you file those returns. You may not owe anything once you file any missing returns, in which case you will get your refund once the returns are processed. But if you do owe taxes for the unfiled years, see above: the IRS will automatically apply your refund against your outstanding liability.
You are delinquent on student loans
The U.S. student loan situation is a big hot mess. The current student loan delinquency rate is 11.2 percent. The Treasury Offset Program will seize your tax refund to pay down your student loans if you are in serious default. If you want to keep your tax refund, consider entering into an income-based repayment program prior to filing your return.
You owe back child support
The Treasury Offset Program can also seize your tax refund to pay off back child support. If you are seriously delinquent, the IRS may keep your tax refund to offset the delinquency. If your refund is larger than the back child support, then you are entitled to the difference. But you may need to contact child support services to obtain the balance of your refund. Do this as soon as you receive the notice of intent to offset.
You missed the filing deadline
If you don’t file a tax return for a year in which you’re due a refund, you can file the return within three years and still receive the refund. After that, you’re out of luck, because there’e a statute of limitations on tax refunds. In short, if you wait too long (three years) to file your return then you permanently lose your ability to claim a refund from that return year.
Your refund is going to the bankruptcy trustee
In a Chapter 7 bankruptcy, your attorney will in most cases be able to fully protect your tax refund. If you are in a Chapter 13 percentage repayment plan, however, you will likely have to cough up your refunds to the Chapter 13 trustee. That’s why it’s important to reduce your exemptions so that you’re not overpaying your taxes each year.