Speaking of refunds, who leaves money on the table? Turns out a lot of people who don’t know they need to file a federal tax return or are so daunted by the process they just don’t bother.
I’ve personally worked with a number of individuals who during our budget sessions confide that they haven’t filed their taxes for years. They had feared they owed and couldn’t pay.
And some did owe — substantial amounts. With encouragement and a good tax professional, I was able to get them to face their tax debt. Almost all had to get on a payment plan, but there was a tremendous burden lifted from their spirit.
Then there were folks who, once they had their old returns prepared, realized they were owed a refund. In a number of cases they had waited too long: The money was gone, sent to the Treasury Department. They could no longer lay claim to it.
That may become the case for an estimated 1.2 million taxpayers who have not filed their 2015 tax return, according to the Internal Revenue Service. They are owed $1.4 billion, the agency says.
The IRS estimates that the median potential refunds for 2015 is $879. Generally, taxpayers have only a three-year window to claim a tax refund. If they don’t make the deadline, the money goes to the Treasury Department. Taxpayers also have to file their returns for 2016 and 2017. To collect their refunds, these taxpayers must file their 2015 tax returns no later than this year’s tax deadline, April 15. If you live in Maine or Massachusetts you have until April 17 to file your 2015 return.
“Students, part-time workers and many others may have overlooked filing for 2015,” said IRS Commissioner Charles Rettig. “And there’s no penalty for filing a late return if you’re due a refund.”
Many low- and moderate-income workers might have been eligible for the Earned Income Tax Credit.
If you can’t find your tax records the IRS can help. Go to irs.gov and click the link for “Get Your Tax Record.” If you can’t get your W-2 online, file IRS Form 4506-T to request the transcript. You can also get prior-year tax forms online or call toll-free 800-TAX-FORM (800-829-3676).
Need help with tax preparation? Go to irs.gov and look for “Get Free Tax Preparation Help” on the main page. Depending on your income, you can get help in filing your federal return and, in many cases, your state return. You’ll see a list of companies offering free software to file.
You may also qualify for free tax preparation through the Volunteer Income Tax Assistance (VITA) program. Or you can try the Tax Counseling for the Elderly (TCE) program — despite the title, assistance is offered to low- to moderate-income taxpayers, not just the elderly, and they specialize in addressing retirement and pension-related issues. To find a VITA or TCE site near you, call 800-906-9887. You can also search for locations at irs.gov. Search for “Find a Location for Free Tax Help.”
If you haven’t filed your return, don’t be afraid. Face this demon because you could be owed some money.
Color of Money Question of the Week
How’s the 2019 tax season going for you? Send your comments to firstname.lastname@example.org. Please include your name, city and state. In the subject line put “Tax Season 2019.”
I won’t have my regular scheduled live discussion today. But please join me next week at noon (Eastern time). My guest will be Eric Bronnenkant, head of tax at Betterment, an online financial advising company. He will be taking your questions about the 2019 tax season.
You can join the discussion by clicking this link.
The highs and lows of tax season
It’s been a tough year for a lot of taxpayers who are not short on criticism of how the major tax changes affected their returns this year.
Last week I asked: Have you been blindsided by changes in the tax law?
On the positive side, one reader wrote: “My husband I received our tax refund last month. We got about $3,400, which was a wonderful surprise given all of the news headlines about decreases in refunds.”
But a lot of readers have been upset because under their state law, if they don’t itemize on their federal return, they can’t itemize on their state income tax return. And for many people this has meant higher state taxes.
“We were blindsided by the state of Maryland,” wrote Brenda Press of Brookeville, Md. “We did not get a tax cut but did not end up paying more than last year. We had already adjusted our taxes based on what our tax preparer told us last year and had extra money withheld. I feel sorry for folks who did not get that message because I don’t think the tax tables the companies are using for withholding work very well any more. But, since we were not allowed to itemize on the federal taxes due to the SALT [state and local tax deduction] caps, we were not allowed to itemize on the Maryland state taxes. We made $3,000 less than in 2017, but had to pay the state of Maryland around $2,000 more than 2017."
Press continued: “We made the decision 10 years ago to buy a house in Montgomery County due to it being close to the metro so I could get to work. No one wants to pay the ridiculous prices for houses around here and the high property taxes, but at least we could deduct the high property taxes on our federal taxes. Not any more. No matter how hard you try to make good financial decisions in life something always gets in the way that is out of your hands. We are going to try to max out our 401(k)s this year to keep the money away from the state of Maryland, and then as soon as I retire we are moving to another state. I want to like my house but now I just see it as a tax money pit and I can’t wait to move.”
Wonder why states make residents file the same way they do for their federal return? Eileen Sherr, senior manager for tax policy and advocacy for the American Institute of CPAs, explains.
“The federal standard deduction rose significantly as a result of the Tax Cuts and Jobs Act, while many state standard deductions are quite low in comparison,” Sherr says. “States that require residents to itemize on their federal tax returns in order to itemize on their state tax returns are likely to do so for two main reasons. One, state legislative action would be required to increase it. Two, state departments of revenue often rely on the federal itemized deductions reported on Form 1040 Schedule A as documentation of itemized deduction details.”
Steve G. from Milltown, N.J., wrote, “Retired teacher, income, deductions same as previous year. Last year, $900 back. This year I owe $1,700! In my 40 plus years of filing, this is the first time I owe money, meanwhile I am getting $500 back from the state.”
“I did not change my withholding, naively assuming that the withholding would adjust to leave me owing the usual amount,” Ana from Massachusetts wrote. “Instead of owing the usual $4,000 I owe $11,000 due to the $10,000 cap on state taxes combined with the elimination of the family deduction. I calculated my taxes under the 2017 rules and the 2018 rules and have been taxed on an additional $60,000 of income. Sigh. I should not have trusted the withholding would be accurate any more.”
Dennis Carracher of Akron, Ohio, wrote, “Whoever was blindsided by the new tax law must have drunk the [Kool-Aid] the Republicans have been serving. No secret to me that the only people who were going to make out were the rich.”
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